Ambac Files Disclosure to Explain Plan Alternatives
Ambac Financial Group Inc., the parent company for an insurer partly in rehabilitation, filed a proposed disclosure statement on July 8 explaining the Chapter 11 reorganization plan filed two days before.
If the Wisconsin insurance commissioner doesn’t accept one of the alternatives in the plan for dividing $7.3 billion in net operating loss tax carryforwards, the Ambac parent will proceed with what it calls a deconsolidation plan where it will transfer to a third party more than 20 percent ownership of the insurance company subsidiary. The resulting change in ownership could limit the inability of the rehabilitated insurance company to utilize NOLs.
The parent’s Chapter 11 case will be converted to a liquidation in Chapter 7 if the commissioner doesn’t accept the settlement and the deconsolidation plan won’t work, according to the disclosure statement.
The options for the insurance commissioner include paying the parent 40 percent of the tax savings realized from utilizing the NOLs. Or, the rehabilitated insurance company could pay the parent $300 million in cash over four years.
A lawsuit is pending in bankruptcy court with the Internal Revenue Service over the NOLs. The parties are currently in mediation.
Under both the settlement plan and the deconsolidation plan, the Ambac parent’s senior noteholders would receive new stock. General unsecured creditors are slated to receive new stock and warrants. Holders of subordinated debt are to have subordinated warrants and 1.5 percent of the new stock if the class accepts the plan.
The disclosure statement has blanks where creditors eventually will be told the percentage recovery to expect. The amounts of claims in the various classes are also blank.
Under the settlement plan, the parent would retain ownership of the insurance company and receive a $350 million junior surplus note together with $30 million cash.
The insurance commissioner said the parent’s plan would “negatively affect” policyholders and he would “vigorously contest” it.
If the commissioner accepts one of the alternatives, lawsuits between the parent and the insurance company would cease. In the deconsolidation plan, a trust would be formed to continue lawsuits by the parent against the subsidiary.
The plan says the claims of senior noteholders would be fixed at $1.25 billion. The subordinated notes would be pegged at $444.2 million.
Ambac said in May that it would file a Chapter 11 plan in June with or without agreement from Wisconsin regulators. From the outset, the parent and the insurance commissioner have been at loggerheads over a division of net tax loss carryforwards.
Ambac’s insurance subsidiary stopped paying dividends to the parent in 2007 and stopped writing new business entirely in mid-2008.
The Ambac parent filed under Chapter 11 in November, listing assets of $90.7 million and liabilities of more than $1.6 billion. Almost all the debt is made of up $1.62 billion owing on seven note issues. One issue for $400 million is subordinated.
The parent’s Chapter 11 case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The state insurance rehabilitation case is In re The Rehabilitation of Segregated Account of Ambac Assurance Corp., 2010cv001576, Dane County, Wisconsin, Circuit Court (Madison). |
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