NU Online News Service, Oct. 11, 1:47 p.m. EDT
Ambac claimants will receive cash and notes if a state court approves the Wisconsin Office of the Commissioner of Insurance's rehabilitation plan released Friday for the carrier's segregated account.
Calling the plan fair and offering the best resolution for policyholders, Wisconsin Insurance Commissioner Sean Dilweg released the details of the proposed plan submitted to Dane County Circuit Court in Wisconsin.
Under the proposal, holders of policies primarily related to credit derivatives residential mortgage-backed securities will receive 25 percent in cash and 75 percent in unsecured surplus notes. The notes will bear an interest rate of 5.1 percent and mature on June 7, 2020.
"This plan treats Ambac policyholders fairly and offers the best outcome for all," Mr. Dilweg said in a recorded address. "It does so in a way that limits damage to policyholders; it maximizes claims paying resources, and it allows the segregated account to deal with claims in an orderly and reasonable manner."
The segregated account was set up in March of this year, involving approximately 700 in-force policies.
The New York-based guarantee insurer Ambac Financial Group said the subsidiary placed in rehabilitation, Ambac Assurance Corp., holds policies totaling about $57.6 billion. The policies consist of RMB securities and "other structured finance transactions," the company said in a statement.
The plan is still subject to court approval. A hearing date has not been set for the plan, but the department said it expects a hearing to be scheduled shortly.
The department set up a website at www.ambacpolicyholders.com to provide current and ongoing information about the plan.
The insurance department said the aim of the plan is to preserve the cash paying ability of the company, maximize claims-paying resources, limit damage to policyholders and provide "a clear framework to address claims in an orderly and reasonable manner."
Ambac ran into trouble when the financial crisis hit more than two years ago and mortgage-back securities the carrier insured came under stress, damaging the business and financial position of the company.
Recently, Ambac sued Bank of America over the lending practices of Countrywide that the bank acquired in 2007. The insurer accused the mortgage lending company of failing to follow its own guidelines and granting loans to individuals who were unable to pay. The practice resulted in $1.95 billion in loan defaults and the insurer made more than $466 million in claims payments.
A group representing Ambac residential mortgage-backed securities policyholders declined to comment at this time.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.