Reuters: Bankruptcy News: Regulator seeks $800 mln for Ambac policyholders

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Regulator seeks $800 mln for Ambac policyholders May 16th 2012, 22:37 Wed May 16, 2012 6:37pm EDT * Wisconsin hopes to pay some claims from segregated account * Ambac has proposed settlement with IRS * Hearings scheduled in June * Ambac hoping to emerge from Chapter 11 bankruptcy May 16 (Reuters) - Wisconsin's insurance commissioner on Wednesday said he asked a state judge for permission to pay out about $800 million to policyholders of a unit of bankrupt bond insurer Ambac Financial Group Inc. Theodore Nickel, the insurance commissioner, oversees a "segregated account" that contains many risky mortgage obligations of Ambac Assurance Corp. He said that upon receiving court permission, he will "in the near term" begin paying 25 percent of each of the $3.2 billion of policy claims submitted so far, and 25 percent of each policy claim submitted in the future. The size of the payout balances the interest of policyholders to recover on some of their claims with the need to preserve cash to cover future claims, he said. Nickel is also seeking court approval for Ambac Assurance to pay about $278 million in cash for $939 million principal amount of surplus notes it had issued in June 2010. The commissioner said this transaction might also boost the amount that policyholders ultimately recover. Under a restructuring approved in 2010, policyholders were to be awarded 25 percent of the value of their claims in cash and 75 percent in surplus notes, bearing interest at 5.1 percent a year. Some hedge funds including Aurelius Capital Management, Fir Tree Inc and Stonehill Capital Management LLC had opposed the restructuring, saying it shortchanged them and was a means to support the parent's bankruptcy reorganization. Once the second-largest U.S. bond insurer, Ambac suffered big losses after it strayed from insuring municipal bonds and began guaranteeing bonds backed by home loans. The New York-based company filed for Chapter 11 protection from creditors in November 2010, and in March won approval of its reorganization plan. Its emergence from bankruptcy hinges on the resolution of a tax dispute with the Internal Revenue Service. Ambac has proposed a $101.9 million settlement, after the IRS had originally demanded the return of more than $800 million. A hearing on the policyholder matters is set for June 4, and a hearing on the IRS settlement is set for June 13, Ambac said. The case is In re: Rehabilitation of Segregated Account of Ambac Assurance Corp, Dane County, Wisconsin, No. 10CV1576. The bankruptcy case is In re: Ambac Financial Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 10-15973. Link this Share this Digg this Email Reprints

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