Ambac Surplus Note Payment On Hold

NU Online News Service, June 2, 2:49 p.m. EDT

Note holders will have to wait before they receive interest payments on the notes they were issued as part of a settlement with guaranty insurer Ambac as the Wisconsin Insurance Commissioner reviews the tax implications of such payments.

 In an announcement late yesterday, Ambac Assurance Corp. said Wisconsin Commissioner Theodore K. Nickel has disapproved the requests of Ambac and the rehabilitator of the Segregated Account of Ambac to pay interest on all outstanding surplus notes issued by Ambac and the Segregated Account on the first scheduled interest payment date of June 7.

The notes were issued as part of individual settlements over financial claims made against Ambac.

In a filing with Dane County Circuit Court in Wisconsin yesterday, the State Insurance Department entered a report on the status of Wisconsin-based Ambac Assurance Corp., a subsidiary of Ambac Financial Group, Inc., headquartered in New York, which is in bankruptcy.

In it, Nickel lays out his concerns regarding the continued financial strength of Ambac Assurance. He says that a review is continuing of certain tax considerations that could affect the health of company if interest on notes were paid. The report says all interested parties will be notified when a decision is made.

In the meantime, a spokesman for Wisconsin's commissioner handling the Ambac rehabilitation says interest will continue to accrue on the notes until payment is made.

Ambac ran into trouble during the great recession when several large financial institutions sought payment for collateralized debt obligations and other financial instruments the company insured that made up the bulk of its portfolio.