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Ambac Financial Group Inc. said it intends to file for Chapter 11 bankruptcy before the end of the year if it cannot reach an agreement with debt holders.

In a filing with the U.S. Securities and Exchange Commission, Ambac said it chose not to make a scheduled interest payment on senior notes due in 2023, which could allow its debtors to accelerate the maturity of the notes if a payment is not made within 30 days.

"To date, the company has been unable to raise additional capital as an alternative to seeking bankruptcy protection," Ambac said in the filing.

The company said it has been trying to negotiate with debt holders to restructure its debt under a pre-packaged bankruptcy agreement, but there "can be no assurance that any definite agreement will be reached."

For the first six months of 2010, net losses for Ambac stood at $748 million. Results were affected by commutation settlements on credit default obligations of asset-backed securities and claim payments on residential mortgage-backed securities and investment losses related to securities.

Ambac said it either plans to pay the interest on the notes, try to reach an agreement with debt holders for a pre-packaged plan of reorganization, or file for Chapter 11. If an agreement is successful, Ambac said in the filing that it plans to file for bankruptcy with a related pre-packaged plan.

In October regulators in Wisconsin released a rehabilitation plan to give claimants cash and notes.

The New York-based guarantee insurer Ambac Financial Group said the subsidiary placed in rehabilitation, Ambac Assurance Corp., holds policies totaling about $57.6 billion.

Recently, Ambac sued Bank of America over the lending practices of Countrywide that the bank acquired in 2007. The insurer accused the mortgage lending company of failing to follow its own guidelines and granting loans to individuals who were unable to pay. The practice resulted in $1.95 billion in loan defaults, and the insurer made more than $466 million in claims payments.

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Ambac May File for Bankruptcy by Year End

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