(Reuters) – Ambac Assurance Corp joined growing opposition to aproposal by Detroit's emergency manager to default on certainbonds, including some the city backed with a pledge of its fullfaith and credit when they were sold, and warned that a default onthem would hinder its ability to borrow in the future.

Ambac, which insures $170.3 million of Detroit's generalobligation bonds, released a statement late Monday criticizing aplan by Kevyn Orr, the city's state-appointed emergency manager, totreat Detroit's GO bonds similarly to the city's “unsecured” debt,offering bondholders just pennies on the dollar.

The statement also criticized the state of Michigan for itsimplied support of Orr's approach.

Ambac, in its statement, raised the prospect that Detroit couldhave difficulty selling bonds in the future as a result of Orr'sapproach. “A successful revitalization of the city will bedependent upon its ability to access cost-effective financing inthe future, including general obligation funding,” Ambac said inthe statement. “Such access will be needlessly imperiled as aresult of the emergency manager's approach and the state's apparentsupport thereof.”

There was no immediate response to Ambac's statement fromspokespersons for Orr and top Michigan officials.

The statement from Ambac comes at a time of rising frictionbetween Detroit and its bond insurers. Last Friday, the city suedSyncora Guarantee, another insurer of Detroit bonds, claiming thecompany interfered with its efforts to reach a deal to terminateinterest rate swap contracts.

Ambac is one of several insurers of Detroit's municipal debt.The company sold policies to Detroit that require Ambac to makedebt service payments in the event the city skips payments on itsbonds.

Ambac said it hired Harrison J. Goldin of Goldin Associates, LLCas an adviser. Goldin served as New York City's comptroller duringits financial crisis in the mid-1970s.

“It is short-sighted to signal to lenders that they cannot trustthe city's unconditional pledge to repay its general obligationdebts, especially given that the general obligation bonds inquestion comprise less than 3 percent of the city's estimate of itsliabilities,” Goldin said in the statement.

Orr on June 14 announced the city would stop paying on $11.5billion of unsecured debt, starting with a default on $1.45 billionof pension obligation certificates of participation. Orr also saidhe considers about $641 million of general obligation debt,including $410 million of unlimited tax bonds, to be unsecured.

At the same time, Orr proposed that all unsecured creditorswould receive a pro rata share of $2 billion of notes the citywould issue and pay off as its financial circumstances improve.

The proposed debt restructuring was part of Orr's sweeping planto fix the finances of the cash-strapped city that has been plaguedby years of declining population and falling revenue. Ifnegotiations with creditors fail, Orr could recommend Detroit filefor Chapter 9 bankruptcy, which would be the largest municipalbankruptcy filing ever.

Several analysts in the $3.7 trillion U.S.municipal bond market have said Detroit's treatment of its GO bondswould have negative ramifications that could boost borrowing costsfor Michigan and its local governments.

Investors are expected to keep a close eye on Detroit's lawsuitagainst Syncora. The lawsuit claims Syncora illegally interferedwith the city's efforts to tap into tax revenue from casinos aspart of an agreement in principal to end swap contracts withcounterparties UBS AG and SBS Financial Products Company withouthaving to pay a more than $340 million termination fee.

Syncora covered $24.7 million of the $35.26 million of combinedpayments due last month on the city's pension debt as a result ofthe default. Another insurer, Financial Guaranty Insurance Corp.,did not remit a payment of about $16.2 million, according to U.S.Bank, the bond trustee. FGIC, which is undergoing a court-orderedrehabilitation process, did not respond to requests forcomment.