Two of the transactions were CDO of CDO of asset-backed securities (ABS) - or CDO-squared, which were originally composed of collateral consisting of A-rated CDO of ABS tranches. CDO-squared transactions are normally made up of leveraged single-tranche CDOs in which the underlying assets are either CDO tranches or a mixed pool of CDO tranches and ABS. The other two were high-grade CDO of ABS exposures which were originally collateral consisting of asset-backed securitizations rated A- or higher.
The majority of the collateral on these transactions had subsequently been downgraded to below investment grade; all of them had also been internally downgraded to sub-investment grade.
"My immediate focus as Ambac's new CEO is to restore confidence in our balance sheet through aggressive risk reduction," chief executive David Wallis explained in a statement issued by the company.
The company expects the move to allow it to record positive adjustments to its aggregate mark-to-market and impairment reserves and boost the rating of its Ambac Assurance arm.
The company has now commuted five CDO transactions - a total notional exposure of $4.9 billion. On August 1, Ambac closed out a $1.4 billion AA transaction that was initially composed of AA-rated CDO of ABS tranches for a cash payment of $850 million. This transaction had also been downgraded to sub-investment grade since its inception.
The week on Risk.net, July 7-13, 2018Receive this by email