Ambac: Interim order restricts equity, claim transfers to protect NOLs

By Caroline Salls

Pittsburgh, Nov. 10 - Ambac Financial Group, Inc. has been granted interim court approval restricting some transfers of equity interests in and claims against the company to preserve $7 billion of net operating losses, according to an 8-K filed Wednesday with the Securities and Exchange Commission.

Under section 382 of the Internal Revenue Code of 1986, transfers by persons or entities holding 5% or more of the company's outstanding equity interests could impair or permanently eliminate the NOLs. Also, transfers of claims by persons or entities who receive 5% or more of the reorganized company's stock under a plan of reorganization could impair or permanently eliminate the NOLs.

As a result, the interim order implements notice and hearing procedures for transfers by a person or entity that beneficially owns, or would beneficially own, more than 13.5 million shares of the company's stock.

Transfers of stock in violation of this interim order will be void.

In addition, the order requires persons or entities that beneficially own claims totaling more than an amount that could allow the claimholder to acquire 4.5% or more of the reorganized debtor agree to "sell down" a portion of its claims before a bankruptcy reorganization.

Any claimholder who does not comply would only receive stock equal to less than 4.5% of the reorganized company's outstanding stock.

IRS stipulation

In addition, Ambac and the IRS have agreed to a stipulation under which the IRS would give notice at least five business days before taking any action against the company's non-debtor subsidiaries that would violate a state court injunction, whether or not in effect.

Ambac said the stipulation allows the status quo to be maintained from Nov. 9 until a hearing on the preliminary injunction that the company plans to seek barring assessment and collection of the 2003 through 2008 tax refunds by the IRS against the non-debtor subsidiaries in the consolidated tax group.

Trading suspended

According to the 8-K, trading of Ambac's common stock and other securities on the New York Stock Exchange has been suspended because of the company's bankruptcy filing.

The company said it does not plan to appeal the suspension, so the securities are expected to be delisted by the NYSE.

The suspended securities include Ambac's common stock, 5 7/8% debentures due March 24, 2103, 5.95% debentures due Feb. 28, 2103 and 9.5% equity units due Feb. 15, 2021.

As a result of the delisting, the company's common stock and the shares of its equity units began trading exclusively on the over-the-counter market on Nov. 9. The common stock is trading under the symbol ABKFQ, and shares of the equity units under the symbol ABKOQ.

Account plan changes

Additionally, the plan of operation for the segregated account of Ambac Assurance Corp. was amended on Nov. 7 to allocate to the account any and all liabilities it has or may have in the future to Ambac Financial in regard to tax refunds arising from a July 18, 1991 tax sharing agreement.

The allocation does not cover any liability pertaining to any possible misallocation of up to $38.5 million of tax refunds received by Ambac Assurance in September 2009 and February 2010, any and all liabilities to the IRS and/or the U.S. Department of the Treasury for taxes imposed under the Internal Revenue Code of 1986 for periods ending on or before Dec. 31, 2009 and liabilities for any federal tax refunds that were received before Nov. 7.

On Nov. 8, the rehabilitation court issued an order enjoining Ambac Financial, any state court receiver, creditors, the IRS and all other government agencies from filing any lawsuits or claims related to the allocated disputed contingent liabilities.

Ambac is a New York-based company that provides financial guarantee insurance for public and structured finance obligations. The company filed for bankruptcy on Nov. 8 in the U.S. Bankruptcy Court for the Southern District of New York, and its Chapter 11 case number is 10-15973.

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