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

The Wisconsin insurance commissioner says Ambac Financial Group's (AFG) plan for reorganization is not in the best interest of policyholders and says he intends to contest it.

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

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

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

Ambac Assurance had set up a segregated account for some Ambac Assurance liabilities at the direction of the Wisconsin Office of the Commissioner of Insurance (OCI) as part of a rehabilitation plan.

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

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

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