Ambac Segregated Account To Pay Claims; MBIA Names New Director

NU Online News Service, March 21, 1:16 p.m. EDT

Troubled New York-based bond insurer Ambac Financial Group said its Wisconsin subsidiary, Ambac Assurance, will begin paying policy claims out of its segregated account in May.

The payments are subject to the terms of the plan of rehabilitation and "there can be no assurances as to when policy claim payments will be made," the company said in a statement.

As part of the plan, Ambac Assurance established, at the direction of the Wisconsin Office of the Commissioner of Insurance (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.

The plan was challenged in court, with one group called the RMBS Policyholders Group stating that the OCI was endorsing a plan that allows Ambac Financial Group 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."

The plan won the approval of the court, which decided, "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."

In Ambac's recent fourth quarter earnings report, the company said there were $328 million in residential mortgage-backed securities claims made to the segregated account in 2010. These claims have gone unpaid as part of a claims moratorium.

Ambac Financial Group is currently in Chapter 11 bankruptcy.

Meanwhile, Armonk, N.Y.-based MBIA, another bond insurer, said it named Steven J. Gilbert as a new director to its board after receiving the resignation of Laurence H. Meyer, who will not stand for re-election "due to the demands of his other professional responsibilities."

Mr. Gilbert, whose nomination is still subject to the election of shareholders at the company's annual meeting, is chairman of Gilbert Global Equity Partners L.P., a private equity firm. He is vice chairman of Stone Tower Capital LLC, a credit manager, vice chairman of the executive board of MidOcean Capital Partners L.P. and chairman of CPM Inc.

An attorney, Mr. Gilbert was chairman and senior managing director of SUN Group (USA), an investment firm, and was managing general partner of Soros Capital L.P., Commonwealth Capital Partners L.P. and Chemical Venture Partners. Over the course of his career he has served on the boards of more than 25 companies.

MBIA's plan to move its healthy municipal bond obligations into National Public Finance Guarantee Corp. has met with resistance from policyholders of CDOs who fear the split will weaken the company's ability to meet its claims-paying obligations.

MBIA has sued a number of banks claiming the nature of the exposures were misrepresented to the carrier and that it should not be obligated to pay the claims because of the this.