Ambac Financial Group files Chapter 11 plan based on global settlement

By Caroline Salls

Pittsburgh, July 7 - Ambac Financial Group, Inc. filed its plan of reorganization Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

The plan is based on a global settlement between the company, Ambac Assurance Corp., Ambac's official committee of unsecured creditors, the informal group of unaffiliated holders of senior notes and the Office of the Commissioner of Insurance for the State of Wisconsin.

Settlement terms

Under the settlement:

• Ambac Financial's affiliates will enter into a cost allocation agreement;

• Ambac Assurance and Ambac Financial will share fees and expenses incurred in an Internal Revenue Service dispute, with 85% going to Ambac Assurance and 15% to Ambac Financial;

• The company will assume a tax sharing agreement and its affiliates will enter into TSA amendments that outline the conditions for the use and allocation of net operating losses;

• The company and reorganized Ambac will not take any actions that would result in a deconsolidation event;

• Any Ambac Assurance obligations that become subject to the authority of a rehabilitation court or other court overseeing a rehabilitation or other insolvency proceeding for Ambac Assurance will be provided administrative expense status;

• Ambac Assurance's segregated account will issue $350 million of junior surplus notes to the reorganized company;

• The insurance commissioner will allow Ambac Assurance to repurchase surplus notes, preferred stock or other securities issued under its rehabilitation plan;

• To the extent that the company, reorganized Ambac or a direct or indirect holder of a beneficial interest requires the insurance commissioner's consent for any transfer or issuance of a beneficial interest, the commissioner shall not unreasonably withhold that consent, as long as it does not result in an ownership change; and

• Specified causes of action against Ambac Assurance, the segregated account and the insurance commissioner's office will not be transferred to the plan's litigation trust.

Creditor treatment

Treatment of creditors under the plan will include:

• Administrative claims, priority tax claims and priority non-tax claims will be paid in full in cash;

• Holders of secured claims will either be paid in full in cash or receive the collateral securing their claims;

• Holders of general unsecured claims will receive a share of new common stock and general unsecured warrants;

• Holders of senior notes claims will receive a share of new common stock in the reorganized company, as well as redistributions of new common stock and subordinated notes warrants, provided, however, that if holders of subordinated notes claims vote to accept the plan, 1.5% of the new common stock to be distributed under the plan will be transferred to the subordinated noteholders before distributing the new common stock to senior noteholders;

• Holders of subordinated notes claims will receive a share of new common stock and subordinated warrants, subject to subordination provisions; and

• Holders of Section 510(b) claims, intercompany claims and equity interests will receive no distribution.

Ambac Financial Group, Inc. 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, 2010, and its Chapter 11 case number is 10-15973.

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