A spokesperson for Ambac says that, as of last month, the company was in violation of certain net asset covenants in the credit agreement. Furthermore, Ambac management determined that the terms weren't in the best interest of shareholders and needed to be changed.
Ambac has struggled to regain its footing after guaranteeing billions of risky repackaged subprime mortgage bonds. Analysts expect the bond insurer will have to shell out billions on those transactions, a costly effort that weighs heavily on Ambac’s capital base.
Historically, bond insurers are known to place their focus on municipal bonds, but many strayed into insuring repackaged mortgages and other debt in a move to diversify and boost profits.