NEW YORK, Oct. 5 (Reuters)—A federal judge has given Ambac Financial Group her approval to send its bankruptcy exit plan to creditors for a vote.

Judge Shelley Chapman approved the plan's outline on Wednesday in U.S. bankruptcy court in Manhattan, clearing a key hurdle in Ambac's path toward crawling out of bankruptcy.

The plan would pay secured claimants in full, but would likely wipe out equity holders. Creditors have until Nov. 23 to vote on the plan. If they approve it, it would return to the judge for a confirmation hearing on Dec. 8.

The latest version of the plan reflects a major settlement with Wisconsin's insurance regulator, without which Ambac may have been forced to liquidate. The settlement resolves tax and expense-related disputes involving the company's Ambac Assurance Corp operating unit.

The unit will make a $30 million up-front payment for Ambac Financial's benefit and pay $5 million per year to cover some Ambac Financial's operating expenses.

General unsecured claimholders would recover 8.5 cents to 13.2 cents on the dollar, while holders of $1.25 billion of senior notes would get between 11.4 cents and 17.6 cents on the dollar. Those groups, along with holders of $444.2 million in subordinated notes, could also stand to receive stock and warrants.

Once the world's second-largest bond insurer, Ambac filed for Chapter 11 bankruptcy last November, burdened by large losses after it strayed in the prior decade from insuring municipal bonds and began guaranteeing bonds backed by risky mortgages.

The Wisconsin regulator in September said the restructuring plan allows Ambac to focus on rehabilitating a segregated account created to hold some of Ambac's riskiest mortgage obligations. The policies in the account had $40.5 billion of exposure as of June 30, Ambac said.

Still unresolved is Ambac's dispute with the U.S. Internal Revenue Service over the company's tax accounting practices related to credit default swap contracts.

That dispute must be resolved for the restructuring plan to take effect, Ambac said in a statement last month when it unveiled the plan.

The parties will try to negotiate a resolution next week, said Peter Ivanick, an attorney for Ambac, on Wednesday.

Ambac was not the only insurer hurt by the financial crisis. MBIA Inc., a larger Armonk, New York-based rival that suffered similar losses, but did not go bankrupt, was restructured by New York's insurance commissioner in 2009.

The Ambac case is In re Ambac Financial Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 10-15973.

Special Reports /

Ambac Can Submit Bankruptcy Exit Plan to Creditors

Related Stories

Recommended For You