Ambac Financial Group Inc., which filed for bankruptcy protection last week, said its third-quarter earnings plunged.

Ambac Financial Group was not able to reach an agreement with debt holders and filed for Chapter 11 bankruptcy relief.

The company said it earned $76 million during the third quarter compared to net income of $2.19 billion a year ago.

Following Ambac's decision to file for Chapter 11 bankruptcy, Standard & Poor's Ratings Services said it revised its ratings on all of Ambac's senior unsecured and subordinated debt issues to “D” from “C.”

According to a statement from Ambac, the company has not been able to raise capital and could not agree to terms with a committee of debt holders to restructure its debt under a pre-packaged bankruptcy agreement.

As of the end of June, Ambac's debt stood at more than $1.6 billion. Payment obligations are put on hold due to the bankruptcy filing.

A recent filing with the U.S. Securities and Exchange Commission indicated Ambac 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 was not made within 30 days. The company had said a bankruptcy filing was possible before the end of the year.

The New York-based guarantee insurer said negotiations with the committee of debt holders will continue. The company agreed to a non-binding set of terms on conditions with the committee “that may allow the company to emerge from bankruptcy more expeditiously,” Ambac said in a statement.

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 as well as investment losses related to securities.

Meanwhile, bond insurer MBIA posted a $213 million third-quarter net loss compared to a net loss of $728 million in the 2009 third quarter.

Troubles experienced by the bond insurance companies are hinged on their decision to get into the mortgage-backed securities and collateralized debt obligations businesses.

MBIA said its loss was due primarily to a $492 million loss on the value of insured credit derivatives, and Ambac said its results reflect reduced gains in its credit derivatives portfolio. The fair value of Ambac's credit derivatives was $9.4 million in the third quarter–far lower than $2.13 million in the third quarter 2009.

MBIA President and Chief Financial Officer Chuck Chaplin said the company's insured losses “continued to moderate in the third quarter compared to those of 2008 and 2009.” The liquidity position of the company has improved, he added.

Early last year the New York Insurance Department allowed MBIA to create a separate entity, National Public Finance Guarantee Corp., to handle municipal bond business. However, litigation has held back efforts to do so.

Nevertheless, Mr. Chaplin said the New York department made the right decision, “borne out by the fact that we continue to pay all claims and obligations as they come due.”

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Ambac Files For Bankruptcy; 3Q Profit Plummets

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