Puerto Rico Highways and Transportation Authority canceled $228.5 million of transportation revenue refunding bonds issued in 2007, reducing Ambac Financial Group, Inc.'s exposure in Puerto Rico.
"We have been at this for several months and completed the cancellation last night," Nader Tavakoli, interim president and chief executive officer of Ambac told The Bond Buyer over the phone. "The bonds in questions are the HTA Transportation Revenue Refunding Series N bonds, issued in 2007 and insured by Ambac Assurance. HTA repurchased the bonds in 2011."
Also according to Tavakoli, the CUSIP for the bonds was 745190ZV3.
"After working with HTA to ensure cancellation of these bonds, we are pleased that Puerto Rico has honored its obligation to do so," Tavakoli said in a press release Wednesday. "We hope to continue working with Puerto Rico constructively."
HTA's repurchase of the bonds required the bond cancellation, at no cost to the insurer's Ambac Assurance unit. Ambac said the elimination of $228.5 million net par exposure to HTA equates to approximately $493 million of lifetime principal and interest.
Puerto Rico and its public corporations are on the verge of restructuring about $70 billion of bond debt which Governor Alejandro García Padilla said in July was un-payable under current economic conditions. According to Interactive Data Corp., the HTA had $6.1 billion of bonds outstanding as of August, including $3.7 billion with insurance. Ambac, which was hit hard in the 2008 financial crisis and doesn't write new business, wrapped about $714 million of that debt.
Mark Palmer, an analyst at BTIG LLC said the cancellation should boost fourth-quarter results for Ambac, and that it meant nearly one-third of the insurer's exposure with the HTA has gone away. The insurer didn't specify when the bonds were cancelled, Palmer said.
"The bonds in question have been outstanding for some time," said Palmer. "Frankly, it should be a healthy number for the fourth quarter and another example of bonds that are being either called or cancelled or otherwise taken out."
Ambac chief financial officer, David Trick said that the cancelled HTA bonds represent $228.5 million of net par, or $493 million of lifetime principal and interest payments, representing over 30% of the company's HTA exposure as of the end of Sept. 2015.
"In the third quarter we incorporated a high probability, but not 100% certainty, of the cancellation into our loss reserves," said Trick. "Now that the cancellation is complete, there will be some positive impact from this specific termination from a reserve standpoint in the fourth quarter. We will also accelerate all the remaining unearned premium reserves associated with these bonds."
The HTA didn't immediately respond to requests for a comment.
