Troubled U.S. bond insurer Ambac Financial Group Inc (ABK.N) has hired Blackstone Group (BX.N) to help it restructure, according to sources familiar with the matter.

Ambac has said in public filings that it is working on a strategy to address liquidity concerns. The company, like its larger rival MBIA Inc (MBI.N), has struggled to write new business since losing its top-notch AAA credit rating in 2008.

Ambac warned in November that it might be forced to seek bankruptcy protection. It expects that it could run out of cash in the second quarter of 2011, or possibly sooner.

At the time, Ambac said it might pursue strategies including “a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding” as it tries to deal with its liquidity issues.

Blackstone and Ambac declined comment.

Ambac, the world’s second biggest bond insurer, has struggled with a cash crunch after writing down repackaged consumer debt hit by the subprime mortgage crisis.

Ambac’s liquidity is largely dependent on its Ambac Assurance unit’s ability to pay dividends, which it is not able to do and is not expected to do in 2010 either.

Ambac said in November that its primary insurance regulator in Wisconsin has increased its oversight of Ambac Assurance and that the unit has submitted a plan to regulators to detail the steps that it has been taking to reduce its risk exposure.

In an attempt to recover some funds, an Ambac unit earlier this month sued Credit Suisse Securities and a mortgage affiliate for “pervasive and material misrepresentations” on mortgage-backed securities that Ambac insured in 2007.

Ambac has insured over $1 trillion in securities, largely for states and municipalities, since it went public in 1991.

Blackstone, which has immense private equity and real estate assets, also advises companies on M&A and restructuring. It has gotten large assignments like advising companies such as insurer American International Group (AIG.N) on its restructuring.

Ambac shares closed down 1.4 percent at 73 cents on the New York Stock Exchange on Tuesday. Its shares had traded above $94 in May 2007. (Reporting by Megan Davies and Emily Chasan, additional reporting by Caroline Humer.