Plan to save bond insurer Ambac

Ambac's shares fell 19% after the plan was announced

US bond insurer Ambac has confirmed a $1.5bn (£750m) plan to preserve its top credit rating and prevent the company having to split up.

It needs a AAA rating to be able to get new business.

US authorities backed Ambac's plan to raise $1.5bn of new capital by selling shares and securities.

The troubled company insures against losses on risky investment products backed by sub-prime mortgages, which are at the centre of the credit crisis.

"It is welcomed news that Ambac and the financial institutions that are working with the company are raising the necessary capital to preserve its credit rating for the benefit of all of its policyholders," New York Governor Eliot Spitzer said.

Disappointment

Ambac's shares fell 19% in New York after the deal was announced.

Investors were disappointed the insurer had not managed to get funding from other banks.

"It looks like [banks] had a close look at what was going on at Ambac, and they backed away. Things may be bad there," Peter Kovalski, from Alpine Woods Capital Investors said.

Ambac has said it will no longer underwrite some of the riskiest investment products.

Fellow bond insurer MBIA managed to maintain its top credit rating in February after it sold assets and cancelled its dividend.