| Ambac Assurance Payout Approved by Wisconsin Judge A plan to pay some Ambac Assurance Corp. policy holders 25 percent of their claims now and the balance with interest in nine years has been approved by a Wisconsin state court judge. Wisconsin Insurance Commissioner Sean Dilweg had sought court approval of his proposal to “rehabilitate” a segregated $50 billion portfolio of Ambac policies insuring mortgage-backed securities and other corporate liabilities. “The plan is feasible and is fair and equitable to policyholders and others with an interest in the Segregated Account,” Judge William D. Johnston wrote in a ruling dated yesterday and made public today. Ambac Assurance was the second-largest U.S. bond insurer before the 2008 financial crisis. Mounting defaults in mortgages underlying the securities swamped the company with claims, threatening its viability. The insurer was paying out as much as $150 million per month in claims, exceeding its revenue, the Dilweg had said. He was succeeded by Ted Nickel on Jan. 3. “We look forward to implementing the plan for the benefit of all policy holders,” Nickel said in a press statement. Once the plan is implemented, the carrier will pay holders of approved claims 25 percent down and the balance in 5.1 percent interest-bearing notes with a maturation date of June 7, 2020, according to the press statement. New York-based Ambac Financial Group Inc., which owns the Wisconsin-based insurer, filed for Chapter 11 bankruptcy court protection on Nov. 8 in Manhattan, claiming $1.68 billion in liabilities. IRS Challenge The U.S. Internal Revenue Service has challenged both companies’ claims to tax deductions they said were generated by $7 billion in net operating losses. A federal court in Wisconsin’s capital city, Madison, on Jan. 14 rejected an IRS bid to remove the case to it from the state court. Absent some of that money, the parent company has said it’s unlikely to be able to reorganize successfully. “We are pleased with this development but believe it has little, if any, direct impact on Ambac’s financial reorganization process,” Peter Poillon, a spokesman for Ambac Financial in New York said in a statement e-mailed to Bloomberg News. He declined to comment further, deferring to the Wisconsin insurance commissioner. Financially ‘Hazardous’ Johnston heard five days of testimony and a full day of closing arguments in November at a courthouse in rural Darlington, about 66 miles southwest of Madison. “Ambac was a financially hazardous company back in March of this year when this proceeding was commenced and it remains so today,” the state’s lawyer, Michael Van Sicklen, said of the insurer in his Nov. 30 summation before Johnston. Dilweg’s proposal drew opposition from hedge funds and from banks acting as trustees for holders of securities insured by the company. Opponents questioned whether the plan will pay policy holders more than if the company had been liquidated and whether, if confirmed, policy holders will ultimately receive full payment. Repayment Date The 2020 repayment date for notes that would be issued under the Dilweg plan is “illusory,” objectors’ attorney David Greenwald told Johnston in his own closing remarks. Citing the insurance commissioner’s own projections, Greenwald, a leader of the opposition to plan confirmation, argued that in three of four scenarios, the insureds are not fully repaid. A Chicago-based lawyer for a group of managers and owners of funds that held securities insured by Ambac, Greenwald did not immediately reply to an e-mailed request for comment. Van Sicklen told Johnston that the insurance commissioner was an objective actor and, unlike the objectors, not self- interested. “The plan equitably apportions unavoidable losses and prevents avoidable losses that would adversely affect” the interests of policy holders, creditors and the public, Johnston said. The case is In re The Rehabilitation of Segregated Account of Ambac Assurance Corp., 2010cv001576, Dane County, Wisconsin, Circuit Court (Madison). http://www.bloomberg.com/news/2011-01-25/...onsin-judge-update1-.html |
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