NU Online News Service, Jan. 27, 2:22 p.m. EST
The Wisconsin Office of the Commissioner of Insurance (OCI) said its plan to rehabilitate Ambac Assurance Corp., a Wisconsin subsidiary of New York-based bond insurer Ambac Financial Group (AFG), has been upheld by a circuit court judge.
The OCI said its plan for Ambac Assurance received approval from Dane County Circuit Court Judge William D. Johnston. The OCI said Judge Johnston "found that the plan satisfied all applicable requirements of Wisconsin law. Judge Johnston also found that the plan is more favorable to policyholders, creditors and the public than any of the alternative regulatory options."
The OCI filed the plan with the court in October. As part of the plan, Ambac Assurance established, at the direction of the OCI, a "segregated account" for some Ambac Assurance liabilities, primarily policies related to credit derivatives, residential mortgage-backed securities and other structured finance transactions. According to the plan, policyholder claimants in the segregated account 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.
A group identifying itself as the RMBS Policyholders Group criticized the rehabilitation plan in a November statement, arguing that it "allows AFG to retain its equity ownership in [Ambac Assurance] while simultaneously proposing a 'Plan of Rehabilitation' in Wisconsin that impairs claims of policyholders, running afoul of the absolute priority rule."
As per the website USLegal.com, the absolute priority rule states that during the liquidation of assets of a business entity, a creditor's claim has "absolute priority" over a shareholder's claim. "According to the absolute priority rule, the investors are compensated only after the claims of the creditors are settled to the satisfaction of the bankruptcy court," the definition states.
The OCI said at the time of the group's complaint that accusations regarding its handling of the Ambac Assurance rehabilitation are inaccurate and misleading.
The RMBS Policyholders Group and others, including banks, Fannie Mae and Freddie Mac, had filed objections to the rehabilitation plan with the court.
But, according to the court, "The Rehabilitator lawfully exercised his discretion under Wisconsin law and the prior orders of this court in preparing and submitting the plan for approval by this court."
The court further said that it will retain "continuing exclusive jurisdiction and venue over this rehabilitation proceeding and all matters or disputes pertaining to, or arising from, implementation of the plan or the terms of this order…."
It also said the group consisting of Aurelius Capital Management LP, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP and Stonehill Capital Management LLC—identifying themselves as "RMBS Policyholders—are "not policyholders in this proceeding. It is further concluded that those entities have not demonstrated the standing to assert positions or arguments as policyholders in this proceeding. They may be heard as parties-in-interest, but not as policyholders."
With the court's confirmation of the rehabilitation plan, Roger Peterson, deputy administrator in OCI's Division of Regulation and Enforcement, said, "When we started reviewing Ambac Assurance Corporation's (AAC) financial condition almost three years ago, we were concerned the company wouldn't have sufficient reserves to pay all valid claims. Confirmation of the plan has mitigated that risk."
The OCI said a notice will be posted on www.ambacpolicyholders.com advising of the effective date of the plan.
Tom Becker, spokesman for the OCI, said the plan should move forward shortly, but that he was unsure if the parties against the plan would pursue further legal action.
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