03/28/2008 02:46 am ET Updated May 25, 2011

Ailing Ambac To Get $3 Billion Bailout

Ambac Financial Group Inc. rose to the highest in two weeks on investor expectations the bond insurer may be rescued from crippling credit-rating downgrades by getting $3 billion in new capital.

Ambac, the second-biggest bond insurer after MBIA Inc., may announce an agreement this week, according to a person with knowledge of the discussions who declined to be named because the details aren't complete. The New York-based company plans to raise $2.5 billion by selling stock at a discount to existing shareholders and $500 million from issuing debt, the Wall Street Journal reported today, citing people familiar with the matter.

``Maybe we'll see light at the end of the tunnel soon,'' said Geraud Charpin, head of European credit strategy at UBS in London. ``That would be good news for banks.''

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According to the WSJ:

Talks went on through the weekend, and the deal could still fall apart, the people cautioned. The deal would involve raising about $2.5 billion in equity and issuing roughly $500 million of debt, the people said.

News of progress toward a deal stoked a late rally on Wall Street on Friday and could do the same in overseas markets today, as investors could begin to adopt a view that some corners of the credit markets are beginning to find ways to ease the crunch's pain.

The big breakthrough on Friday came when the group of banks presented a document to Ambac committing to the equity and debt participation, someone familiar with the matter said.

But others debate whether if the bailout will be enough?