NU Online News Service, May 24, 1:37 p.m. EDT

Wisconsin's commissioner of insurance amended his decision from last week and will now allow Ambac to purchase just two of three bank notes.

Wisconsin Insurance Commissioner Ted Nickel says there will be a cost savings by not going through with the original approval.

Bond insurer Ambac Assurance Corp. received permission last week to exercise call options to purchase $939 million in par value surplus notes the company issued in 2010. The company expected to pay aggregate cash value of $278 million.

In the amended motion filed with the Dane County Court in Wisconsin, Nickel has decided that of the three notes with three different banks, two will be paid because of an unfavorable provision in the agreement with the third bank.

Under that provision, the bank would have to be paid an amount equal to the highest rate-per-dollar in the call option.

As such, the other two banks would be paid at a rate of 20 cents on the dollar, while the third would receive 30 cents on the dollar.

To avoid paying a higher rate, and possibly protracted litigation or negotiation, the department decided to approve the note purchase of only two banks.

Under terms of the amended order, Ambac will also pay interest on the notes, which was not permitted under the original order.

The current approval allows for the purchase of approximately $789 million in par amount notes for a total cost of approximately $188 million.

The notes were issued in 2010 as part of a settlement agreement with three unnamed banks. That same year, New York-based Ambac filed for bankruptcy protection after suffering severe losses from insuring structured-financial instruments. The company received permission to reorganize in March, but it has not yet implemented the plan.

Special Reports /

Insurance Regulator Amends Ambac Note-Purchase Approval

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