Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced that in response to persistent and unfounded speculation regarding Ambac’s liquidity situation, it has released information about collateral requirements and terminations of its investment agreement business related to recent actions by the rating agencies. “Despite the challenging current environment, it is important for us to continually communicate that we have ample liquidity to manage our commitments going forward,” said Chairman and Chief Executive Officer, Michael Callen, “Our company-wide resources available are a multiple of any conceivable collateral or termination requirement in our financial services businesses.”

Rating agency actions affecting Ambac Assurance Corporation (AAC) during June resulted in $506 million of increased collateral posting requirements in the investment agreement business and investment agreement terminations of $270 million:

• The downgrade of AAC by Standard & Poor’s to AA on June 5, 2008, resulted in an incremental collateral posting requirement of approximately $76 million.
• Moody’s downgrade of AAC to Aa3 on June 19, 2008, resulted in an incremental collateral posting requirement of approximately $70 million and investment agreement terminations of approximately $270 million.
• The action by Fitch to withdraw the ratings of AAC on June 26, 2008, resulted in an incremental collateral posting requirement of approximately $360 million.

The current collateral and termination obligations have been adequately covered by the investment agreement asset portfolio.

Aggregate collateral requirements and terminations for the investment agreement business at various AAC rating levels, starting with the lower of AAC’s two current ratings (currently Moody’s at Aa3), are as follows:

The book value of investment agreement liabilities at May 31, 2008, amounted to $6.9 billion (down from $7.7 billion at December 31, 2007). The market value of the investment agreement asset portfolio, including cash of approximately $400 million, as of May 31, 2008, is approximately $5.6 billion. In addition, the market value of interest rate derivative contracts held by the investment agreement business is positive $160 million.

Based on May 31, 2008 investment agreement asset portfolio market values:

• Upon a downgrade of AAC to A+ or A1, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio has sufficient value to meet projected cumulative collateral requirements and terminations.
• Upon a downgrade to A or A2, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.0 billion.
• Upon a downgrade to A- or A3, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.1 billion.

In the event of cash and/or security shortfalls in the investment agreement business, management anticipates utilizing the resources of AAC (through inter-company transactions). Utilizing the resources of AAC would allow time for the assets in the investment agreement asset portfolio to recover in value and would preempt claims on insurance policies issued by AAC and prevent the realization of losses in the investment agreement asset portfolio. Ambac is in discussions with the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) with respect to its strategies for managing the collateral posting and termination obligations of the investment agreement business. These discussions have been positive. Ambac believes that it will obtain OCI’s approval of its plans to address the collateral posting and termination obligations of the investment agreement business in the event of downgrades to the A/A2 rating level. AAC’s investment portfolio is valued at approximately $12 billion with over $1 billion in cash and short-term securities at May 31, 2008. At the A/A2 rating level, Ambac management would evaluate its various resources and utilize those considered most appropriate to satisfy the contractual obligations of the investment agreement business.

Management continues to closely monitor the cash requirements of the investment agreement portfolio and manages the related cash and securities portfolio accordingly. The Company expects to report its second quarter 2008 earnings on August 6, 2008, and will provide a comprehensive update on its financial services businesses.

Forward-Looking Statements

This release contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any or all of management’s forward-looking statements here or in other publications may turn out to be wrong and are based on Ambac’s management current belief or opinions. Ambac’s actual results may vary materially, and there are no guarantees about the performance of Ambac’s securities. Among events, risks, uncertainties or factors that could cause actual results to differ materially are: (1) changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (2) the level of activity within the national and worldwide credit markets; (3) competitive conditions and pricing levels; (4) legislative and regulatory developments; (5) changes in tax laws; (6) changes in our business plan, our decision to discontinue writing new business in the financial services area, to significantly reduce new underwriting of structured finance business and to discontinue all new underwritings of structured finance business for six months from March 6, 2008; (7) the policies and actions of the United States and other governments; (8) changes in capital requirements whether resulting from downgrades in our insured portfolio or changes in rating agencies’ rating criteria or other reasons; (9) changes in Ambac’s and/or Ambac Assurance’s credit or financial strength ratings; (10) changes in accounting principles or practices relating to the financial guarantee industry or that may impact Ambac’s reported financial results; (11) inadequacy of reserves established for losses and loss expenses; (12) default by one or more of Ambac Assurance’s portfolio investments, insured issuers, counterparties or reinsurers; (13) credit risk throughout our business, including large single exposures to reinsurers; (14) market spreads and pricing on insured collateralized debt obligations (“CDOs”) and other derivative products insured or issued by Ambac; (15) credit risk related to residential mortgage securities and CDOs; (16) the risk that holders of debt securities or counterparties on credit default swaps or other similar agreements seek to declare events of default or seek judicial relief or bring claims alleging violation or breach of covenants by Ambac or one of its subsidiaries; (17) the risk that our underwriting and risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (18) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, or FAS 133, to the portion of our credit enhancement business which is executed in credit derivative form; (19) operational risks, including with respect to internal processes, risk models, systems and employees; (20) the risk of decline in market position; (21) the risk that market risks impact assets in our investment portfolio; (22) the risk of credit and liquidity risk due to unscheduled and unanticipated withdrawals on investment agreements; (23) changes in prepayment speeds on insured asset-backed securities; (24) factors that may influence the amount of installment premiums paid to Ambac; (25) the risk that we may be required to raise additional capital, which could have a dilutive effect on our outstanding equity capital and/or future earnings; (26) our ability or inability to raise additional capital, including the risks that regulatory or other approvals for any plan to raise capital are not obtained, or that various conditions to such a plan, either imposed by third parties or imposed by Ambac or its Board of Directors, are not satisfied and thus potentially necessary capital raising transactions do not occur, or the risk that for other reasons the Company cannot accomplish any potentially necessary capital raising transactions; (27) the risk that Ambac’s holding company structure and certain regulatory and other constraints, including adverse business performance, affect Ambac’s ability to pay dividends and make other payments; (28) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on our business, operations, financial position, profitability or cash flows; (29) changes in expectations regarding future realization of gross deferred tax assets; (30) other factors described in the Risk Factors section in Part I, 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K, which are or will be available on the Ambac website at www.ambac.com and at the SEC’s website, www.sec.gov; and (31) other risks and uncertainties that have not been identified at this time. Readers are cautioned that forward-looking statements speak only as of the date they are made and that Ambac does not undertake to update forward-looking statements to reflect circumstances or events that arise after the date the statements are made. You are therefore advised to consult any further disclosures we make on related subjects in Ambac’s reports to the SEC.

Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations, has earned a Aa3 rating from Moody's Investors Service, Inc. and a AA rating from Standard & Poor's Ratings Services; Moody’s rating is on negative outlook while Standard & Poor's maintains a credit watch negative. Ambac Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).

Ambac Financial Group, Inc.
Investor/Media:
Vandana Sharma, 212-208-3333
vsharma@ambac.com
or
Fixed Income:
Peter Poillon, 212-208-3222
ppoillon@ambac.com