NU Online News Service, July 7, 3:07 p.m.EDT

The Wisconsininsurance commissioner says Ambac Financial Group's (AFG) plan forreorganization is not in the best interest of policyholders andsays he intends to contest it.

New York-based bond insurer AFG filed for Chapter 11 bankruptcy protection late last year afterseveral large financial institutions sought payment forcollateralized debt obligations and other financial instruments thecompany insured during the great recession.

The company filed its plan for reorganization in the U.S.Bankruptcy Court for the Southern District of New Yorkyesterday.

In a statement on the Ambac Policyholders InformationCenter, Wisconsin Insurance Commissioner Theodore K. Nickel, who isserving as rehabilitator for AFG's Wisconsin-based subsidiary AmbacAssurance, objected to the plan, saying he "does not believe thatthe reorganization plan proposed by Ambac Financial Group Inc. isin the best interests of policyholders of the [Ambac Assurance]segregated account, or for that matter, those of the AFGcreditors."

Ambac Assurance had set up a segregated account for some Ambac Assuranceliabilities at the direction of the Wisconsin Office of theCommissioner of Insurance (OCI) as part of a rehabilitationplan.

Nickel believes the AFG reorganization plan diverts value fromthat Ambac Assurance segregated account. 

He says discussions were held between the department and AFG tocome to "mutually agreeable terms," but the "parties reached animpasse."

He says that creditors pushed AFG to file a plan that is"inconsistent with the consensual direction of the recentnegotiations" with the department.