<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration no. 001-10777
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 30, 1998)
[AMBAC LOGO]
$200,000,000
AMBAC FINANCIAL GROUP, INC.
7.08% Debentures Due March 31, 2098
------------------------
The Debentures will bear interest at the rate of 7.08% per annum. Ambac
Financial Group, Inc. ("Ambac") will pay interest on March 31, June 30,
September 30 and December 31 of each year, beginning on June 30, 1998. The
Debentures will mature on March 31, 2098. Ambac may not redeem the Debentures
prior to March 31, 2003. On or after March 31, 2003, Ambac may redeem the
Debentures at 100% of their principal amount, plus accrued interest to the date
of redemption. Ambac may also shorten the maturity of the Debentures or redeem
all of the Debentures at 100% of their principal amount, plus accrued interest,
in the event of certain changes involving United States federal income taxation.
The Debentures will not have the benefit of any sinking fund.
The Debentures will be unsecured obligations of Ambac and will rank equally
with all of Ambac's other unsecured senior indebtedness. The Debentures will be
issued only in registered form in denominations of $25 and integral multiples
thereof.
Ambac will make application to list the Debentures for trading on the New
York Stock Exchange. Ambac expects trading of the Debentures on the New York
Stock Exchange to begin within a 30-day period after the initial delivery of the
Debentures.
<TABLE>
<CAPTION>
PER DEBENTURE TOTAL
<S> <C> <C>
Price to Public.......................................... 100% $200,000,000
Underwriting Discount.................................... 3.15% $ 6,300,000
Proceeds to Ambac........................................ 96.85% $193,700,000
</TABLE>
Ambac expects that the Debentures will be ready for delivery in book-entry
form only through The Depository Trust Company on or about April 6, 1998.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH
BARNEY
------------------------
The date of this Prospectus Supplement is April 1, 1998.
<PAGE> 2
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Debentures. Such
transactions may include stabilizing and purchasing Debentures to cover
syndicate short positions. For a description of these activities, see
"Underwriting."
LIMITATIONS ON OFFERS OR SOLICITATIONS
Neither Ambac nor any Underwriter intends this document to be an offer or
solicitation:
(A) if used in a jurisdiction in which such offer or solicitation is
not authorized;
(B) if the person making such offer or solicitation is not qualified
to do so; or
(C) if such offer or solicitation is made to anyone to whom it is
unlawful to make such offer or solicitation.
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<PAGE> 3
AMBAC FINANCIAL GROUP, INC.
Ambac is a holding company that provides through its affiliates financial
guarantee insurance and financial management services to clients in both the
public and private sectors in the U.S. and abroad. Ambac's principal operating
subsidiary, Ambac Assurance Corporation ("Ambac Assurance"), is a leading
insurer of municipal bonds and structured securities, primarily asset-backed
securities (securities in which a specific pool of assets, such as residential
mortgages or home equity loans, provides the funds for payments on the
securities). Ambac also provides investment agreements, interest rate swaps,
investment management services and electronic commerce solutions, principally to
states, municipalities and their authorities, school districts, and hospitals
and health organizations.
Ambac Assurance is primarily engaged in insuring municipal and structured
finance obligations and is the successor of the oldest municipal bond insurance
company, which wrote the first municipal bond insurance policy in 1971.
Financial guarantee insurance written by Ambac Assurance guarantees payment when
due of the principal and interest on the obligation insured. In the case of
default on the insured obligation, payments under the insurance policy may not
be accelerated by the policyholder without Ambac Assurance's consent. Ambac
Assurance seeks to minimize the risk inherent in its insurance portfolio by
maintaining a diverse portfolio which spreads its risk across a number of
criteria, including issue size, type of bond, geographic area and obligor.
Ambac Assurance's ability to pay claims earned a triple-A rating from the
following four ratings agencies, Moody's Investors Service, Inc., Standard &
Poor's Ratings Group, Fitch IBCA, Inc. and Nippon Investors Service, Inc. The
strength of these ratings is essential to Ambac Assurance's ability to enhance
the credit of obligations it insures.
Ambac provides investment agreements and interest rate swaps to various
public entities. Ambac Assurance insures these financial instruments, allowing
them to benefit from Ambac Assurance's strong claims paying ratings. Municipal
bond issuers use our investment agreements to invest the money they raise with
their bonds until they use that money for its intended purpose. Ambac's clients
use our insured interest rate swaps to reduce the interest cost of the money
they borrow by locking in specific interest rates on their debt.
Through its investment adviser and broker-dealer affiliates, Ambac provides
investment advisory, cash management and administration services, primarily to
school districts and local government entities to help manage their finances
more effectively.
Because Ambac is a holding company, we depend on dividends from our
subsidiaries to pay dividends on our capital stock, to pay principal and
interest on our indebtedness and to pay our operating expenses. The payment of
dividends by Ambac Assurance is subject to certain insurance regulatory
restrictions.
RECENT DEVELOPMENTS
For the fourth quarter of 1997, Ambac's net income was $58.9 million and
net income per diluted share was $0.83. This represents a 13% increase from
fourth quarter 1996 net income of $52.0 million, and a 14% increase from fourth
quarter 1996 net income per diluted share of $0.73. For the full year 1997,
Ambac's net income was $223.0 million, a 19% decline from 1996 net income of
$276.3 million. Net income per diluted share was $3.13 in 1997, a 20% decline
from 1996 net income per diluted share of $3.91. The decrease in net income was
primarily the result of the sale of an affiliate, which resulted in a net
realized gain of $155.6 million in 1996 (which had a net income per diluted
share effect of $1.42). Excluding the effect of this one-time gain, 1997 net
income increased 27% over 1996.
On December 18, 1997, Ambac Assurance acquired Construction Loan Insurance
Corporation ("CLIC"). Ambac Assurance paid $106 million in cash and retired
$18.4 million of CLIC debt. CLIC (renamed Connie Lee Holdings, Inc.) and its
triple-A rated financial guarantee insurance subsidiary Connie Lee Insurance
Company ("Connie Lee"), are now wholly owned subsidiaries of Ambac Assurance.
Connie Lee, which guaranteed bonds issued primarily for college and hospital
infrastructure projects, is not expected
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<PAGE> 4
to write any new business. Ambac Assurance and Connie Lee have arrangements in
place to assure that Connie Lee maintains a level of capital sufficient to
support Connie Lee's outstanding obligations and for Connie Lee insured bonds to
retain their triple-A rating. As previously reported, management expects the
acquisition to have a positive impact on earnings in 1998, depending upon
several factors, including interest rates and economic conditions.
RATINGS
Ambac's outstanding long-term senior debt has ratings of Aa2 and AA from
Moody's Investors Services, Inc. and Standard & Poor's Ratings Group,
respectively. A security rating is not a recommendation to buy, sell or hold
securities and is subject to revision or withdrawal at any time by the assigning
rating organization.
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<PAGE> 5
CAPITALIZATION
The following table sets forth the capitalization of Ambac at December 31,
1997 and as adjusted to give effect to the issuance and sale of the Debentures.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
9 3/8% Debentures due 2011................................ 149,389 149,389
7 1/2% Debentures due 2023................................ 74,475 74,475
7.08% Debentures due 2098................................. -- 200,000
--------- ---------
Total long-term debt................................... 223,864 423,864
========= =========
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
shares -- 4,000,000; issued and outstanding
shares -- none......................................... -- --
Common stock, par value $0.01 per share; authorized
shares -- 100,000,000; issued shares -- 70,680,384..... 707 707
Additional paid-in capital................................ 500,107 500,107
Unrealized gains on investments, net of tax............... 135,066 135,066
Retained earnings......................................... 1,262,740 1,262,740
Cumulative translation adjustment......................... 157 157
Common stock held in treasury at cost, 732,947 shares..... (26,295) (26,295)
--------- ---------
Total stockholders' equity............................. 1,872,482 1,872,482
--------- ---------
Total capitalization........................................ 2,096,346 2,296,346
========= =========
</TABLE>
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<PAGE> 6
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
The financial data presented below, as of and for each of the years in the
five-year period ended December 31, 1997, were derived from Ambac's audited
financial statements. See "RECENT DEVELOPMENTS" for certain results of
operations for the year ended December 31, 1997.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Gross premiums written............ $ 286.2 $ 247.2 $ 193.3 $ 189.9 $ 318.3
Net premiums written.............. 253.7 209.4 164.7 192.7 282.5
Net premiums earned............... 154.0 136.6 111.8 117.5 152.0
Net investment income............. 159.7 144.9 131.0 117.1 104.6
Net realized gains (losses)....... 21.2 136.2 19.2 (15.2) 30.8
Financial management services
income.......................... 35.2 22.0 13.1 15.9 8.7
Total revenues.................... 381.8 452.9 282.3 242.3 299.3
Losses and loss adjustment
expenses........................ 2.9 3.8 3.4 2.6 (1.8)
Financial guarantee insurance
underwriting and operating
expenses........................ 40.7 37.2 34.5 32.8 34.5
Financial management services
expenses........................ 28.0 12.0 7.8 6.1 2.0
Interest expense.................. 21.3 20.9 20.9 18.8 15.8
Income before income taxes........ 286.0 375.5 214.2 179.9 247.4
Net income........................ 223.0 276.3 167.6 141.1 179.3
Net income per share(1)........... 3.19 3.95 2.39 2.00 2.54
Net income per diluted share...... 3.13 3.91 2.37 1.99 2.52
Cash dividends per share(1)....... 0.3450 0.3075 0.2775 0.2475 0.2250
BALANCE SHEET DATA
Total investments................. $ 6,915.1 $ 5,200.5 $ 4,441.6 $ 3,764.2 $ 3,132.7
Prepaid reinsurance............... 183.5 168.8 153.4 139.9 161.3
Total assets...................... 8,249.7 5,876.4 5,309.3 4,287.0 3,807.2
Unearned premiums................. 1,179.0 991.2 903.0 836.6 782.8
Losses and loss adjustment
expenses........................ 103.3 60.6 66.0 65.7 64.0
Obligations under investment
agreements, investment
repurchase agreements and
payment agreements.............. 4,321.0 2,754.6 2,426.9 2,025.3 1,477.7
Debentures........................ 223.9 223.8 223.7 223.7 223.6
Total liabilities................. 6,377.2 4,261.4 3,905.3 3,253.5 2,707.5
Total stockholders' equity........ 1,872.5 1,615.0 1,404.0 1,033.5 1,099.7
Book value per share(1)........... 26.77 23.01 20.02 14.75 15.57
SELECTED FINANCIAL STATISTICS
Gross insurance inforce........... $321,104.0 $268,870.0 $235,118.0 $205,810.0 $186,022.0
Net insurance inforce............. 275,931.0 227,235.0 199,078.0 171,678.0 148,916.0
Qualified statutory capital....... 1,674.6 1,466.6 1,358.8 1,218.2 1,121.6
Capital ratio..................... 165:1 155:1 147:1 141:1 133:1
</TABLE>
- ---------------
(1) Per share amounts have been retroactively adjusted to reflect the
two-for-one stock split which occurred in September 1997.
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<PAGE> 7
DESCRIPTION OF THE DEBENTURES
The following description of the particular terms of the Debentures
supplements the description of the general terms and provisions of Debt
Securities, including the Debentures, set forth in the accompanying Prospectus.
Reference is made to the accompanying Prospectus for a summary of certain
additional provisions of the Debentures.
GENERAL
Ambac will issue the Debentures as a separate series of senior debt
securities under an Indenture, dated as of April 1, 1998 (the "1998 Indenture"),
between Ambac and First Union National Bank, as trustee (the "Trustee"). Other
than the identity of the Trustee, the provisions of the 1998 Indenture are
identical to the provisions of the Indenture, dated August 1, 1991, between
Ambac and The Chase Manhattan Bank, as trustee, which are described in greater
detail under "Description of the Debt Securities" in the accompanying
Prospectus. Capitalized terms not otherwise defined herein shall have the
meanings given to them in the accompanying Prospectus and the 1998 Indenture.
The aggregate principal amount of the Debentures will be limited to
$200,000,000. The Debentures will be unsecured obligations of Ambac and will
rank equally with all of Ambac's other unsecured senior indebtedness.
The Debentures will bear interest at the rate of 7.08% per annum. Interest
will accrue from April 6, 1998, or from the most recent interest payment date to
which Ambac has paid or duly provided for interest. Ambac will pay interest on
the Debentures on March 31, June 30, September 30 and December 31 of each year,
beginning on June 30, 1998. Interest payments will be made to the persons or
entities in whose names the Debentures are registered at the close of business
on March 15, June 15, September 15 or December 15, as the case may be, next
preceding the relevant interest payment date. Interest will be calculated on the
basis of a 360-day year of twelve 30-day months.
The Debentures will mature on March 31, 2098. Ambac may not redeem the
Debentures prior to March 31 , 2003, except to the extent described below. See
"-- Optional Redemption Upon Tax Event." On or after March 31, 2003, Ambac may
redeem the Debentures, in whole at any time or in part from time to time, at
100% of their principal amount, plus accrued interest to the date of redemption.
Ambac must give not less than 30 nor more than 60 days prior notice of any
redemption. The Debentures will not have the benefit of any sinking fund.
The Trustee, through its corporate trust office in Newark, New Jersey, will
act as Ambac's paying agent for the Debentures. Ambac will make principal and
interest payments in respect of the Debentures through the Trustee. See
"-- Book-Entry System."
The Debentures will be issued only in registered form in denominations of
$25 and integral multiples thereof. Ambac expects market makers to trade the
Debentures in round lots of 100 units (representing $2,500 aggregate principal
amount).
CONDITIONAL RIGHT TO SHORTEN MATURITY UPON TAX EVENT
Ambac intends to deduct interest paid on the Debentures for United States
federal income tax purposes. However, tax law changes were proposed by the
Clinton Administration in 1997 that would have prohibited an issuer, such as
Ambac, from deducting interest payments on debt instruments with a maturity of
more than 40 years. While none of these proposals has become law, Ambac cannot
be sure that similar legislation affecting its ability to deduct interest paid
on the Debentures will not be enacted in the future, or that any such
legislation would not apply to debt instruments issued before the date of
enactment.
If a Tax Event (defined below) occurs, Ambac will have the right to shorten
the maturity of the Debentures to the minimum extent required, in the opinion of
nationally recognized independent tax counsel ("Tax Counsel"), such that Ambac
will be able to deduct interest paid on the Debentures for United States federal
income tax purposes. If Tax Counsel is unable to render a definite opinion as to
the minimum period required, Ambac will have the right to shorten the maturity
of the Debentures to such minimum period as its
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<PAGE> 8
Board of Directors may determine in good faith after receiving an opinion of Tax
Counsel regarding the applicable legal standards. Ambac can give no assurance
that it will not exercise its right to shorten the maturity of the Debentures if
a Tax Event occurs. Likewise, Ambac can give no assurance as to the period to
which such maturity would be shortened.
If Ambac elects to shorten the maturity of the Debentures upon the
occurrence of a Tax Event, Ambac will mail a notice of the shortened maturity to
each registered holder of record of the Debentures stating the new maturity date
of the Debentures. Ambac will mail such notice by first-class mail not more than
60 days after the occurrence of such Tax Event. Such notice will be effective
immediately upon mailing.
Ambac believes that the Debentures should constitute indebtedness for
United States federal income tax purposes under current law and, in that case,
the shortening of the maturity of the Debentures would not be a taxable event to
you for such purposes. You should be aware, however, that the shortening of the
maturity of the Debentures will be a taxable event to you if, prior to such
shortening, the Debentures are treated as equity for United States federal
income tax purposes.
"Tax Event" means the receipt by Ambac of an opinion of Tax Counsel to the
effect that, as a result of the occurrence of any of the following events on or
after April 1, 1998, there is more than an insubstantial increase in the risk
that interest paid by Ambac on the Debentures is not, or will not be,
deductible, in whole or in part, by Ambac for federal income tax purposes:
- any amendment to, clarification of, or change (including any announced
prospective amendment, clarification or change) in any law, or any
regulations of the United States,
- any judicial decision, official administrative pronouncement, ruling,
regulatory procedure, notice or announcement (including any notice or
announcement of intent to adopt or promulgate any ruling, regulatory
procedure or regulation, and including the issuance of proposed
regulations) (each an "Administrative or Judicial Action"), or
- any amendment to, clarification of, or change in any official position
with respect to, or any interpretation of, an Administrative or Judicial
Action or law or regulation of the United States that differs from the
position or interpretation that was previously generally accepted.
OPTIONAL REDEMPTION UPON TAX EVENT
If a Tax Event occurs and, in the opinion of Tax Counsel experienced in
such matters, there would, notwithstanding the shortening of the maturity of the
Debentures, be more than an insubstantial risk that interest paid by Ambac on
the Debentures is not, or will not be, deductible, in whole or in part, by Ambac
for United States federal income tax purposes, Ambac will have the right, within
90 days following the occurrence of such Tax Event, to redeem the Debentures in
whole (but not in part) at 100% of their principal amount, plus accrued
interest. Ambac must give not less than 30 nor more than 60 days prior notice of
any redemption.
BOOK-ENTRY SYSTEM
The Debentures will be available for purchase in book-entry form only. Upon
issuance, all of the Debentures will be represented by a single global Debenture
that will be deposited with DTC and registered in the name of Cede & Co., DTC's
nominee. By purchasing Debentures in this offering, you will be purchasing an
equivalent beneficial interest in the global Debenture held by DTC. Except as
described below, you will not be entitled to have Debentures registered in your
name, and you will not receive or be entitled to receive physical delivery of
any Debentures that you purchase. Unless and until physical Debentures are
issued to you, you will not be recognized as a holder of Debentures by Ambac or
the Trustee. Accordingly, until such time, you will only be able to exercise the
rights of a holder indirectly through DTC and its participating organizations.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities certificates. Such laws may
impair or limit your ability to own or transfer beneficial interests in the
global Debenture.
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<PAGE> 9
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilitates the settlement among its participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants in DTC's system include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the Securities and Exchange Commission.
Purchases of beneficial interests in the global Debenture within DTC's
system must be made by or through direct participants, which will receive a
credit for such beneficial interests on DTC's records. If you decide to purchase
any Debentures in this offering, your beneficial interest in the global
Debenture will in turn be recorded on the direct and indirect participants'
records. You will not receive written confirmation from DTC of your purchases,
but you are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of your holdings, from the direct
or indirect participants through which you purchased your Debentures. Transfers
of beneficial interests in the global Debenture will be accomplished by entries
made on the books of participants acting on behalf of the owners of such
interests.
Conveyances of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to the ultimate owners of beneficial interests in the
global Debenture will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Although voting with respect to the Debentures is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to the Debentures. Under its usual procedures, DTC would mail an
Omnibus Proxy to Ambac as soon as possible after the applicable record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the beneficial interests in the global Debenture
are credited on the applicable record date (identified in a listing attached to
the Omnibus Proxy).
Ambac will make principal and interest payments in respect of the global
Debenture by wire transfer of immediately available funds to DTC. DTC's practice
is to credit direct participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records, unless DTC has
reason to believe that it will not receive payment on such payment date.
Payments by participants to those owning beneficial interests in the global
Debenture through them will be governed by standing instructions and customary
practices, as in the case with securities held for the account of customers in
bearer form or registered in "street name." Such payments will be the
responsibility of such participants and not of DTC, the Trustee or Ambac,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Ambac or the Trustee will be responsible for the payment of
principal and interest to DTC, DTC will be responsible for the disbursement of
such payments to direct participants, and direct and indirect participants will
be responsible for disbursement of such payments to the ultimate owners of the
beneficial interests.
As described in the accompanying Prospectus, if you decide to purchase any
Debentures in this offering, you will be entitled to receive physical Debentures
registered in your name in exchange for your beneficial interest in the global
Debenture only if:
- DTC notifies Ambac that it is unwilling or unable to continue serving as
the depositary for the global Debenture or DTC ceases to maintain certain
qualifications under the Securities Exchange Act of 1934 and no successor
depositary has been appointed for 90 days;
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<PAGE> 10
- Ambac determines, in its sole discretion, not to require all of the
Debentures to be represented by the global Debenture; or
- an Event of Default with respect to the Debentures has occurred and is
continuing.
In any such event, Ambac will exchange the global Debenture for an equal
aggregate principal amount of physical Debentures in denominations of $25 and
integral multiples thereof. Such physical Debentures will be registered in such
name or names as DTC shall instruct the Trustee. Ambac expects that such
instructions may be based upon directions that DTC receives from participants
with respect to ownership of beneficial interests in the global Debenture.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Ambac believes to be reliable, but Ambac
takes no responsibility for the accuracy thereof.
AMBAC'S RELATIONSHIP WITH THE TRUSTEE
The Trustee under the 1998 Indenture, First Union National Bank,
occasionally acts as trustee in connection with obligations insured by Ambac
Assurance. Additionally, the Trustee is a participant with a group of
international banks in a limited recourse credit facility provided to Ambac
Assurance.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Ambac has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., PaineWebber
Incorporated, Prudential Securities Incorporated and Smith Barney Inc. are
acting as representatives (the "Representatives"), has severally agreed to
purchase, the principal amount of the Debentures set forth opposite its name
below. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Debentures if any are
purchased. In the event of default by an Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
DEBENTURES
UNDERWRITER ------------
- -----------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $ 33,600,000
Goldman, Sachs & Co......................................... 33,600,000
PaineWebber Incorporated.................................... 33,600,000
Prudential Securities Incorporated.......................... 33,600,000
Smith Barney Inc............................................ 33,600,000
BT Alex. Brown Incorporated................................. 2,000,000
Robert W. Baird & Co. Incorporated.......................... 2,000,000
Bear, Stearns & Co. Inc..................................... 2,000,000
CIBC Oppenheimer Corp....................................... 2,000,000
Cowen & Company............................................. 2,000,000
Dain Rauscher Incorporated.................................. 2,000,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 2,000,000
A.G. Edwards & Sons, Inc.................................... 2,000,000
EVEREN Securities, Inc...................................... 2,000,000
Legg Mason Wood Walker, Incorporated........................ 2,000,000
Piper Jaffray Inc........................................... 2,000,000
Raymond James & Associates, Inc............................. 2,000,000
The Robinson-Humphrey Company, LLC.......................... 2,000,000
Tucker Anthony Incorporated................................. 2,000,000
US Clearing Corp............................................ 2,000,000
Wheat First Securities, Inc................................. 2,000,000
------------
Total............................................. $200,000,000
============
</TABLE>
The Representatives have advised Ambac that the Underwriters propose
initially to offer the Debentures to the public at the public offering price set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such price less a concession not in excess of 2% of the principal amount of the
Debentures. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of 1.2% of the principal amount of the Debentures to certain other
dealers. After the initial public offering, the offering price, concession and
discount may be changed.
The Debentures are a new issue of securities with no established trading
market. Ambac will make application to list the Debentures on the New York Stock
Exchange. Ambac expects trading of the Debentures on the New York Stock Exchange
to commence within a 30-day period after the initial delivery of the Debentures.
The Representatives have advised Ambac that they intend to make a market in the
Debentures prior to the commencement of trading on the New York Stock Exchange.
The Representatives
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<PAGE> 12
will have no obligation to make a market in the Debentures, however, and may
discontinue market making activities, if commenced, at any time without notice.
Ambac can give no assurance as to the liquidity of the trading market for the
Debentures.
In connection with the offering, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Debentures. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Debentures. If the Representatives create a short
position in the Debentures in connection with the offering, i.e., if they sell a
greater aggregate principal amount of Debentures than is set forth on the cover
page of this Prospectus Supplement, the Representatives may reduce that short
position by purchasing Debentures in the open market. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither Ambac nor any Underwriter makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the Debentures. In addition, neither Ambac nor
any Underwriter makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Ambac has agreed to indemnify the several Underwriters against, or
contribute to payments that the Underwriters may be required to make in respect
of, certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
Certain of the Underwriters and their affiliates have from time to time
provided investment banking, financial advisory and other services to, and have
been engaged in various transactions with, Ambac and its subsidiaries in the
ordinary course of business.
LEGAL MATTERS
Certain legal matters relating to the Debentures will be passed upon for
Ambac by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, and by
Richard B. Gross, General Counsel of Ambac. Brown & Wood LLP, New York, New
York, will pass upon certain legal matters relating to the Debentures for the
Underwriters.
S-12
<PAGE> 13
PROSPECTUS
BY THIS PROSPECTUS
AMBAC FINANCIAL GROUP, INC.
MAY OFFER
DEBT SECURITIES
------------------------
We will provide the specific terms of securities to be offered in
supplements to this Prospectus. Supplements may also add, update or change
information contained or incorporated by reference in this Prospectus. You
should read this Prospectus and the supplements carefully before you invest.
------------------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission. None of these organizations has
determined that this Prospectus, or any accompanying Prospectus Supplement or
Pricing Supplement, is accurate or complete. Any representation to the contrary
is a criminal offense.
------------------------
The date of this Prospectus is March 30, 1998.
<PAGE> 14
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the securities offered
under this Prospectus. Those transactions include over-allotment, stabilizing
transactions, short covering transactions and penalty bids. If begun, they may
discontinue those activities at any time. For a description of those activities,
see "Plan of Distribution" in this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find Additional Information................... 3
Ambac Financial Group, Inc.................................. 5
Use of Proceeds............................................. 5
Ratio of Earnings to Fixed Charges.......................... 6
Description of the Debt Securities.......................... 7
Plan of Distribution........................................ 13
Legal Opinions.............................................. 13
Experts..................................................... 13
</TABLE>
2
<PAGE> 15
WHERE YOU CAN FIND ADDITIONAL INFORMATION
As required by the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), Ambac Financial Group, Inc. ("Ambac" or "we") files
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission ("SEC"). You may read and copy any
reports, proxy statements and other information that we file with the SEC at the
SEC's Public Reference Rooms at (a) 450 Fifth Street, N.W., Washington, D.C.
20549; (b) Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and (c) Seven World Trade Center, New York, New York 10048.
You can also request copies of these documents, upon payment of a duplicating
fee, by writing to the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the SEC's Public Reference Rooms. Ambac's SEC
filings are also available to the public on the SEC's Internet site
(http://www.sec.gov). Ambac's common stock is listed on the New York Stock
Exchange and you can obtain information regarding Ambac from the Exchange at 20
Broad Street, New York, New York 10005.
Ambac has filed a registration statement on Form S-3 with the SEC covering
the securities described in this Prospectus. For further information with
respect to Ambac and those securities, you should refer to our registration
statement and its exhibits. We have summarized certain key provisions of
contracts and other documents that we refer to in this Prospectus. Because a
summary may not contain all the information that is important to you, you should
review the full text of the document. We have included copies of these documents
as exhibits to our registration statement.
The following documents, which we filed with the SEC under Section 13 of
the Securities Exchange Act, are incorporated by reference in this Prospectus.
This means that important disclosure about Ambac is made by referring you to
specific documents that we filed with the SEC and are considered to be a part of
this Prospectus.
- Ambac's Annual Report and Form 10-K for the fiscal year ended December
31, 1996;
- Ambac's quarterly reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997, and September 30, 1997;
- Ambac's Current Reports on Form 8-K dated January 30, 1997, March 12,
1997, January 29, 1998 and March 27, 1998; and
- All other reports that we filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act since December 31, 1996.
We are also incorporating by reference into this Prospectus each of the
following documents we file with the SEC after the date of this Prospectus and
prior to the termination of the offering of the securities offered by this
Prospectus:
- Reports filed under Sections 13(a) and (c) of the Securities Exchange
Act;
- Definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Securities Exchange Act.
Statements in this Prospectus or in a document incorporated by reference
may be modified or superseded by statements in this Prospectus, a prospectus
supplement or in any other document incorporated by reference, regardless of
when filed. Any modified or superseded statement does not, except as so modified
or superseded, constitute a part of this Prospectus.
You should rely only on the information contained or incorporated by
reference in this Prospectus, any prospectus supplement or any pricing
supplement. We have not authorized anyone to provide you with any other
information. You should not assume that the information in this Prospectus, an
accompanying prospectus supplement or any document incorporated by reference is
accurate as of any date other than the date on the front of the document.
3
<PAGE> 16
You may request copies of all documents incorporated by reference into this
Prospectus (and exhibits incorporated by reference into those documents) at no
cost by writing or telephoning us at the following address:
Richard B. Gross
Senior Vice President, General Counsel and Secretary
Ambac Financial Group, Inc.
One State Street Plaza
New York, New York 10004
(212) 668-0340
We are not making an offer of these securities in any state where the offer
is not permitted. We are required to disclose that the Commissioner of Insurance
of the State of North Carolina has not approved or disapproved the offering of
securities by this Prospectus nor has the Commissioner determined the accuracy
or adequacy of this Prospectus.
4
<PAGE> 17
AMBAC FINANCIAL GROUP, INC.
Ambac is a holding company that provides through its affiliates financial
guarantee insurance and financial management services to clients in both the
public and private sectors in the U.S. and abroad. Ambac's principal operating
subsidiary, Ambac Assurance Corporation ("Ambac Assurance"), is a leading
insurer of municipal bonds and structured securities, primarily asset-backed
securities (securities in which a specific pool of assets, such as residential
mortgages or home equity loans, provides the funds for payments on the
securities). Ambac also provides investment agreements, interest rate swaps,
investment management services and electronic commerce solutions, principally to
states, municipalities and their authorities, school districts, and hospitals
and health organizations.
Ambac Assurance is primarily engaged in insuring municipal and structured
finance obligations and is the successor of the oldest municipal bond insurance
company, which wrote the first municipal bond insurance policy in 1971.
Financial guarantee insurance written by Ambac Assurance guarantees payment when
due of the principal and interest on the obligation insured. In the case of
default on the insured obligation, payments under the insurance policy may not
be accelerated by the policyholder without Ambac Assurance's consent. Ambac
Assurance seeks to minimize the risk inherent in its insurance portfolio by
maintaining a diverse portfolio which spreads its risk across a number of
criteria, including issue size, type of bond, geographic area and obligor.
Ambac Assurance's ability to pay claims earned a triple-A rating from the
following four ratings agencies, Moody's Investors Service, Inc., Standard &
Poor's Ratings Group, Fitch IBCA, Inc. and Nippon Investors Service, Inc. The
strength of these ratings is essential to Ambac Assurance's ability to enhance
the credit of obligations it insures.
Ambac provides investment agreements and interest rate swaps to various
public entities. Ambac Assurance insures these financial instruments, allowing
them to benefit from Ambac Assurance's strong claims paying ratings. Municipal
bond issuers use our investment agreements to invest the money they raise with
their bonds until they use that money for its intended purpose. Ambac's clients
use our insured interest rate swaps to reduce the interest cost of the money
they borrow by locking in specific interest rates on their debt.
Through its investment adviser and broker-dealer affiliates, Ambac provides
investment advisory, cash management and administration services, primarily to
school districts and local government entities to help manage their finances
more effectively.
Because Ambac is a holding company, we depend on dividends from our
subsidiaries to pay dividends on our capital stock, to pay principal and
interest on our indebtedness and to pay our operating expenses. The payment of
dividends by Ambac Assurance is subject to certain insurance regulatory
restrictions.
USE OF PROCEEDS
Unless we tell you otherwise in an accompanying prospectus supplement, we
will use the net proceeds from the sale of any securities offered by this
Prospectus for general corporate purposes. Examples of general corporate
purposes include additions to working capital of subsidiaries, acquisitions and
repurchases of common stock.
5
<PAGE> 18
RATIO OF EARNINGS TO FIXED CHARGES
The following table contains our ratio of earnings to fixed charges for
each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............ 13.41x 17.91x 10.77x 10.14x 15.78x
</TABLE>
- ---------------
We computed the ratio of earnings to fixed charges by dividing earnings
before income taxes and extraordinary items plus fixed charges by the fixed
charges. For the purpose of this ratio, fixed charges consist of interest
expense incurred, capitalized interest, amortization of debt expense and
one-third of rental payments under operating leases (an amount deemed
representative of the appropriate interest factor).
6
<PAGE> 19
DESCRIPTION OF THE DEBT SECURITIES
THE SECURITIES WE MAY OFFER
We may offer unsecured senior or subordinated debt securities in an
aggregate principal amount of up to $250,000,000. A prospectus supplement will
describe the specific amounts, prices and terms of any securities we offer.
Throughout this Prospectus:
- the term "Senior Debt Securities" refers to our unsecured senior debt
securities;
- the term "Subordinated Debt Securities" refers to our unsecured
subordinated debt securities; and
- the term "Debt Securities" refers to Senior Debt Securities and
Subordinated Debt Securities.
ISSUANCE OF DEBT SECURITIES UNDER INDENTURE
Ambac will issue Debt Securities under an indenture (the indenture, as
supplemented from time to time, is referred to in this Prospectus as the
"Indenture"), dated as of August 1, 1991 between Ambac and The Chase Manhattan
Bank, which serves as the trustee under the Indenture. A copy of the Indenture
has been incorporated by reference as an exhibit to the registration statement
of which this Prospectus is a part. This Prospectus contains a summary of
certain provisions of the Indenture. However, you should refer to the Indenture
itself for a complete understanding of its exact provisions.
The Indenture allows us to issue Debt Securities in an unlimited aggregate
principal amount and in one or more series at various times. The specific terms
of any series of Debt Securities will be established by an indenture
supplemental to the Indenture or a resolution of Ambac's board of directors and
may include certain terms not included in the Indenture or exclude certain terms
that are contained in the Indenture. However, the specific terms of any series
of Debt Securities will be described in a prospectus supplement.
TERMS
The applicable prospectus supplement will describe the following terms of
the Debt Securities of each series:
- the title of the Debt Securities and whether they are Subordinated Debt
Securities or Senior Debt Securities;
- any limit on the aggregate principal amount of the Debt Securities;
- the price or prices at which we will sell the Debt Securities;
- the maturity date or dates of the Debt Securities;
- the per annum interest rate or rates, if any, on the series and the date
or dates from which any such interest will accrue;
- whether the amount of payments of principal of (and premium, if any) or
interest on the Debt Securities may be determined with reference to any
index, formula or other method, such as one or more currencies,
commodities, equity indices or other indices, and the manner of
determining the amount of such payments;
- the dates on which we will pay interest on the Debt Securities and the
regular record date for determining who is entitled to the interest
payable on any interest payment date;
- the place or places where the principal of (and premium, if any) and
interest on the Debt Securities will be payable;
7
<PAGE> 20
- if we possess the option to do so, the periods within which and the
prices at which we may redeem the Debt Securities, in whole or in part,
pursuant to optional redemption provisions, and the other terms and
conditions of any such provisions;
- our obligation, if any, to redeem, repay or purchase Debt Securities by
making periodic payments to a sinking fund or through an analogous
provision or at the option of holders of the Debt Securities, and the
period or periods within which and the price or prices at which we will
redeem, repay or purchase the Debt Securities, in whole or in part,
pursuant to such obligation, and the other terms and conditions of such
obligation;
- the denominations in which the Debt Securities will be issued, if other
than $1,000 and integral multiples of $1,000;
- the portion or methods of determining the portion of the principal amount
of the Debt Securities which we must pay upon the acceleration of the
maturity of the Debt Securities in connection with an Event of Default
(as described below), if other than the full principal amount;
- the currency, currencies or currency unit in which we will pay the
principal of (and premium, if any) or interest, if any, on the Debt
Securities, if not United States dollars;
- provisions, if any, granting special rights to holders of the Debt
Securities upon the occurrence of specified events;
- any deletions from, modifications of or additions to the Events of
Default or our covenants with respect to the applicable series of Debt
Securities, and whether or not such Events of Default or covenants are
consistent with those contained in the Indenture;
- the application, if any, of the terms of the Indenture relating to
defeasance and covenant defeasance (which terms are described below) to
the Debt Securities;
- whether any of the Debt Securities will be issued in global form and, if
so, the terms and conditions upon which global Debt Securities may be
exchanged for certificated Debt Securities;
- the depositary for global or certificated Debt Securities;
- any trustees, authenticating or paying agents, transfer agents or
registrars or other agents with respect to the Debt Securities; and
- any other terms of the Debt Securities consistent with the provisions of
the Indenture.
SUBORDINATION
The prospectus supplement relating to any offering of Subordinated Debt
Securities will describe the specific subordination provisions. However, unless
otherwise noted in the prospectus supplement, Subordinated Debt Securities will
be subordinate and junior in right of payment to all Senior Indebtedness of
Ambac.
Under the Indenture, "Senior Indebtedness" means all notes or other
unsecured evidences of our indebtedness, whether outstanding on the date of the
Indenture or created, assumed or incurred at a later date, for money we borrow
(including all indebtedness of any other person for money borrowed which we
guarantee) not expressed to be subordinate or junior in right of payment to any
other of our indebtedness.
Unless otherwise noted in the accompanying prospectus supplement, if we
default in the payment of any principal of (or premium, if any) or interest on
any Senior Indebtedness when it becomes due and payable, whether at maturity or
at a date fixed for prepayment or by declaration or otherwise, then, unless and
until such default is cured or waived or ceases to exist, we will make no direct
or indirect payment (in cash, property, securities, by set-off or otherwise) in
respect of the principal of or interest on the Subordinated Debt Securities, or
in respect of any redemption, retirement, purchase or other acquisition of any
of the Subordinated Debt Securities.
8
<PAGE> 21
If any of the following events occurs, we will pay in full all Senior
Indebtedness before we make any payment or distribution under the Subordinated
Debt Securities, whether in cash, securities or other property, to any holder of
Subordinated Debt Securities:
- any insolvency, bankruptcy, receivership, liquidation, reorganization, or
other similar case or proceeding relating to us, our creditors or our
assets;
- any proceeding for the liquidation, dissolution or other winding-up of
Ambac, voluntary or involuntary, whether or not involving insolvency or
bankruptcy;
- many general assignment by us for the benefit of creditors; or
- any other marshaling of our assets or liabilities.
In such event, any payment or distribution under the Subordinated Debt
Securities, whether in cash, securities or other property, which would otherwise
(but for the subordination provisions) be payable or deliverable in respect of
the Subordinated Debt Securities, will be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then existing
among such holders until all Senior Indebtedness has been paid in full. If any
payment or distribution under the Subordinated Debt Securities is received by
any holder of any Subordinated Debt Securities in contravention of any of the
terms of the Indenture and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and paid over or delivered and transferred to, the holders of the
Senior Indebtedness at the time outstanding in accordance with the priorities
then existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full.
The Indenture does not limit the issuance of additional Senior
Indebtedness.
Because we are a holding company, our rights and the rights of our
creditors, including the holders of Debt Securities, to participate in the
assets of any subsidiary upon its liquidation or recapitalization will be
subject to the prior claims of the subsidiary's creditors, except to the extent
that we may ourself be a creditor with recognized claims against the subsidiary.
RESTRICTIVE COVENANTS
Unless we tell you otherwise in an accompanying prospectus supplement, the
following restrictive covenants shall apply to each series of Senior Debt
Securities:
1. Limitation on Liens. So long as any Debt Securities are outstanding,
neither Ambac nor any of its subsidiaries will create, incur or guarantee any
debt which is secured by any mortgage, pledge, lien, security interest or other
encumbrance on any capital stock of Ambac Assurance, any successor to the
business of Ambac Assurance which is also a subsidiary of Ambac or any
corporation (other than Ambac) having direct or indirect control of Ambac
Assurance or any such successor. However, this restriction will not apply if the
Debt Securities then outstanding are secured at least equally and ratably with
the otherwise prohibited secured debt so long as it is outstanding.
2. Limitations on Dispositions of Stock of Certain Subsidiaries. So long
as any Debt Securities are outstanding and subject to the provisions of the
Indenture regarding mergers, consolidations and sales of assets, neither Ambac
nor any of its subsidiaries will sell or otherwise dispose of any shares of
capital stock of Ambac Assurance, any successor to the business of Ambac
Assurance which is also a subsidiary of Ambac or any corporation (other than
Ambac) having direct or indirect control of Ambac Assurance or any such
successor, except for:
- a sale or other disposition of any of such stock to a wholly-owned
subsidiary of Ambac or of such subsidiary;
- a sale or other disposition of all of such stock for at least fair value
(as determined by Ambac's board of directors acting in good faith); or
9
<PAGE> 22
- a sale or other disposition of any of such stock for at least fair value
(as determined by Ambac's board of directors acting in good faith), if,
after such transaction, Ambac and its subsidiaries would own more than
80% of the issued and outstanding voting stock of Ambac Assurance or any
such successor.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
Under the Indenture, so long as any Debt Securities are outstanding, we may
not consolidate or merge with another corporation or convey, transfer or lease
its properties or assets as an entirety or substantially as an entirety to
another person, unless:
- the successor or purchaser is a corporation organized under the laws of
the United States, any state within the United States or the District of
Columbia;
- the successor or purchaser expressly assumes our obligations under the
Indenture and the Debt Securities; and
- immediately after the transaction, no Event of Default, and no event
which, if notice was given and/or a certain period of time passed, would
become an Event of Default, shall exist.
Except as described above, neither the Indenture nor the Debt Securities
contain "event risk" or similar provisions intended to protect you if we become
involved in a merger or other significant corporate event.
EVENTS OF DEFAULT
Unless we tell you otherwise in an accompanying prospectus supplement, the
following shall constitute "Events of Default" under the Indenture with respect
to each series of Debt Securities:
- our failure for 30 days to pay any interest on any Debt Security of such
series when due;
- our failure to pay principal (or premium, if any) on any Debt Security of
such series when due, regardless of whether such payment became due
because of maturity, redemption, acceleration or otherwise;
- our failure to perform any of our covenants with respect to such Debt
Securities for 60 days after we receive notice of such failure;
- certain defaults with respect to our debt (other than the Debt Securities
or non-recourse debt) in an aggregate principal amount in excess of $10,000,000
consisting of the failure to make any payment at maturity or that results in
acceleration of the maturity of such debt; and
- certain events of bankruptcy, insolvency or reorganization of Ambac,
Ambac Assurance or any successor to the business of Ambac Assurance which
is also a subsidiary of Ambac.
We are required to file with the trustee each year a written statement as
to our compliance with certain of our obligations under the Indenture.
REMEDIES
If an Event of Default resulting from the failure to pay interest or
principal (or premium, if any) on the Debt Securities of any series exists,
either the trustee or the holders of 25% in aggregate principal amount of
outstanding Debt Securities of such series may declare the principal of all the
outstanding Debt Securities of that series and all accrued interest on those
Debt Securities immediately due.
If one of the other Events of Default exists, either the trustee or the
holders of 25% in aggregate principal amount of the outstanding Debt Securities
of all existing series (voting together as one class) may declare the principal
of all the outstanding Debt Securities of all series and all accrued interest on
those Debt Securities immediately due.
Under certain conditions these declarations may be annulled and defaults
which have been cured may be waived by the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of the
10
<PAGE> 23
affected series (voting separately) or of all series (voting together as one
class), whichever was required to make the declaration in the first place.
Before the principal of the Debt Securities of any series is declared
immediately due as described above, the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of the affected series
(voting separately) or of all series (voting together as one class), depending
on the nature of the Event of Default, may waive any Event of Default other than
an Event of Default:
- resulting from a failure to pay principal of (and premium, if any) or
interest on any of the Debt Securities or
- in respect of a provision of the Indenture which cannot be modified
without the consent of the holder of each Debt Security affected by the
modification.
If an Event of Default occurs, the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series (voting
separately) or of all series (voting together as one class), depending on the
nature of the proceeding, may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee, or exercising any trust
or power conferred on the trustee. However, unless the Indenture requires
otherwise, the trustee is not under any obligation to exercise any of its rights
or powers under the Indenture at the request or direction of holders of Debt
Securities unless such holders offer reasonable indemnity to the trustee.
DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option, irrevocably deposit with the trustee money and/or
United States government obligations in an amount that would be sufficient to
pay the principal of (and premium, if any) and interest on the Debt Securities
of a series when each payment becomes due. If we do so, we may then elect to be
discharged from our obligations on the Debt Securities of such series (other
than certain continuing obligations specified in the Indenture relating to the
transfer of Debt Securities, the replacement of temporary or mutilated, lost or
stolen Debt Securities and the place we maintain for payments on the Debt
Securities) or to be discharged from our obligations with respect to the Debt
Securities of such series under certain covenants.
Notwithstanding the deposit of funds and/or United States government
obligations described above, in order to effect defeasance or covenant
defeasance, the Indenture requires us to deliver to the trustee an opinion of
counsel that the contemplated defeasance or covenant defeasance will not cause
the holders of Debt Securities of the relevant series to recognize income, gain
or loss for Federal income tax purposes.
MODIFICATION AND WAIVER
Under the Indenture, Ambac and the trustee may supplement the Indenture for
certain purposes which would not materially adversely affect the interests of
the holders of Debt Securities of a series without the consent of those holders.
Ambac and the trustee may also modify the Indenture or any supplemental
indenture in a manner that affects the interests or rights of the holders of
Debt Securities with the consent of the holders of at least a majority in
principal amount of the outstanding Debt Securities of all affected series
(voting together as one class). However, any modification which would (i) change
the maturity or reduce the principal amount of any Debt Securities, reduce their
interest rate or extend the time of interest payments, reduce any amount payable
upon redemption of such Debt Securities or impair or affect the right of any
holder of Debt Securities to institute suit for payments on the Debt Securities
or (ii) make certain changes to the requirements for modification of the
Indenture or any supplemental indenture, requires the consent of each holder of
Debt Securities that would be affected by the modification. In addition, no
supplemental indenture may directly or indirectly modify the Indenture in any
manner which might alter the subordination of outstanding Subordinated Debt
Securities.
The Indenture permits the holders of at least a majority in aggregate
principal amount of the outstanding Debt Securities of all series (voting
together as one class) to waive our compliance with certain covenants contained
in the Indenture.
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<PAGE> 24
PAYMENT AND PAYING AGENTS
We will make payment of principal of, premium (if any) and interest on Debt
Securities at the place we designate. We may, at our option, make payments of
interest by check mailed to the address of the person entitled to receive such
interest payment according to the register for the Debt Securities or by
transfer to an account of such person. Interest payments will be made to the
person in whose name a Debt Security is registered as of a certain number of
days prior to the relevant payment date. Although we may designate additional
paying agents or remove paying agents, we will at all times maintain a paying
agent in each place we designate for payment.
If the Debt Securities are represented by global certificates, payments on
them will be made to DTC (as defined in the next paragraph).
DENOMINATIONS, REGISTRATIONS AND TRANSFER
Unless we tell you otherwise in an accompanying prospectus supplement, Debt
Securities will be represented by one or more global certificates registered in
the name of a nominee for The Depository Trust Company ("DTC"). In such case,
each holder's beneficial interest in the global securities will be shown on the
records of DTC and transfers of beneficial interests will only be effected
through DTC's records.
A holder of Debt Securities may only exchange a beneficial interest in a
global security for certificated securities registered in the holder's name if:
- DTC notifies us that it is unwilling or unable to continue serving as the
depositary for the relevant global securities or DTC ceases to maintain
certain qualifications under the Securities Exchange Act and no successor
depositary has been appointed for 90 days;
- We determine, in our sole discretion, that the global security shall be
exchangeable; or
- an Event of Default has occurred and is continuing.
If Debt Securities are issued in certificated form, they will only be
issued in the minimum denomination specified in the accompanying prospectus
supplement and integral multiples of such denomination. Transfers and exchanges
of such Debt Securities will only be permitted in such minimum denomination.
Transfers of Debt Securities in certificated form may be registered at the
trustee's corporate office or at the offices of any paying agent or trustee
appointed by Ambac under the Indenture. Exchanges of Debt Securities for an
equal aggregate principal amount of Debt Securities in different denominations
may be also be made at such locations.
GOVERNING LAW
The Indenture and Debt Securities will be governed by the laws of New York.
OUR RELATIONSHIP WITH THE TRUSTEE
The trustee under the Indenture, The Chase Manhattan Bank, occasionally
acts as trustee in connection with obligations insured by Ambac Assurance. We
also have other business dealings with The Chase Manhattan Bank and its
affiliates in its capacity as a commercial bank.
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<PAGE> 25
PLAN OF DISTRIBUTION
We may sell Debt Securities (a) through underwriters or dealers; (b)
directly to one or more purchasers; or (c) through agents. The relevant
prospectus supplement will include the names of underwriters, dealers or agents
retained. The prospectus supplement also will include the purchase price or
prices of the Debt Securities, our proceeds from the sale, any underwriting
discounts or commissions and other items constituting underwriters'
compensation.
The underwriters will acquire the Debt Securities for their own account.
They may resell the Debt Securities in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
the securities will be subject to certain conditions. The underwriters will be
obligated to purchase all the securities offered if they purchase any
securities. Any initial public offering price and any discounts or concessions
allowed or re-allowed or paid to dealers may be changed from time to time.
Underwriters, dealers, and agents that participate in the distribution of
the Debt Securities may be underwriters as defined in the Securities Act of 1933
("Securities Act"), and any discounts or commissions received by them from Ambac
and any profit on the resale of the Debt Securities by them may be treated as
underwriting discounts and commissions under the Securities Act.
We may have agreements with the underwriters, dealers, and agents to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments which the
underwriters, dealers or agents may be required to make.
Any underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act. Over-allotment involves sales in excess of
the offering size, which creates a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum. Short covering transactions involve purchases
of the securities in the open market after the distribution is completed to
cover short positions. Penalty bids permit the underwriters to reclaim a selling
concession from a dealer when the securities originally sold by the dealer are
purchased in a covering transaction to cover short positions. Those activities
may cause the price of the securities to be higher than it would otherwise be.
If commenced, the underwriters may discontinue those activities at any time.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
LEGAL OPINIONS
Richard B. Gross, who is Ambac's General Counsel, will issue an opinion
about the legality of the Debt Securities. Underwriters and agents may have
their own counsel.
EXPERTS
The consolidated financial statements of Ambac Financial Group, Inc. as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996 have been incorporated herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. To the extent that
KPMG Peat Marwick LLP audits and reports on financial statements of Ambac
Financial Group, Inc. issued at future dates, and consents to the use of their
report thereon, such financial statements also will be incorporated by reference
in the registration statement in reliance upon their report and said authority.
13
<PAGE> 26
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. NEITHER AMBAC NOR
ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
NEITHER AMBAC NOR ANY UNDERWRITER IS MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT COVER OF THIS PROSPECTUS SUPPLEMENT.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
PAGE
Ambac Financial Group, Inc. .......... S-3
Recent Developments................... S-3
Ratings............................... S-4
Capitalization........................ S-5
Selected Consolidated Financial and
Statistical Data.................... S-6
Description of the Debentures......... S-7
Underwriting.......................... S-11
Legal Matters......................... S-12
PROSPECTUS
Where You Can Find Available
Information......................... 3
Ambac Financial Group, Inc. .......... 5
Use of Proceeds....................... 5
Ratio of Earnings to Fixed Charges.... 6
Description of the Debt Securities.... 7
Plan of Distribution.................. 13
Legal Opinions........................ 13
Experts............................... 13
</TABLE>
======================================================
======================================================
$200,000,000
AMBAC FINANCIAL
GROUP, INC.
7.08% DEBENTURES DUE MARCH 31, 2098
[AMBAC LOGO]
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
APRIL 1, 1998
======================================================
