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CU System
Wis. court denies suit vs. Ambac-banks settlement
DARLINGTON, Wis. (5/28/10)--A Wisconsin judge Tuesday denied motions that sought to prevent the monoline insurer Ambac Financial Group Inc. from settling with 17 banks holding the company's securities in a restructuring plan unveiled in March by the Wisconsin Office of the Insurance Commissioner. The ruling by Lafayette County Circuit Judge William Johnston in Darlington, Wis., was a victory for Wisconsin Insurance Commissioner Sean Dilweg's plan to restructure up to $67 billion in claims against Ambac. The plan aims to save the company and protect policyholders from further losses (The Wisconsin State Journal May 27). Ambac is one of the monoline insurers whose troubles have contributed to several corporate credit unions' other-than-temporary-impairment charges (OTTIs) on their financial statements. In the settlement proposal, the banks agreed to accept less money on their policy claims against Ambac. Instead of receiving up to $12.9 billion, the banks will accept $2.6 billion in cash and $2 billion in promissory notes with interest over a number of years (The Wisconsin State Journal and The Wall Street Journal May 27). In late March, Dilweg oved to take control of the troubled insurance policies issued by Ambac's insurance unit, Ambac Assurance Corp. The $67 billion in claims include roughly $40 billion of liabilities tied to subprime mortgages that failed, said the State Journal. The insurance commissioner and Ambac maintained that claims from the toxic policies threatened Ambac's core business, which includes about $300 billion in much safer policies insuring municipal and corporate bonds, such as those held by corporate credit unions. Dilweg separated the funds--putting the $300 billion in traditional bond policies into a general account that the company continues to control and segregating the $67 billion in riskier policies. Under the plan, claims made by holders of the defaulted policies would be paid at 25 cents for every dollar of coverage, plus a promissory note for the balance with interest over time. Two groups of investors filed the motions to block the settlement, arguing it was unfair and would hurt their claims. Those seeking to block the bank deal include Freddie Mac and hedge funds Aurelius Capital Management and Fir Tree Partners, which all hold Ambac-guaranteed residential mortgage-backed securities, and Eaton Vance Corp., which holds Ambac-insured Las Vegas Monorail Co. municipal bonds, said Bloomberg Businessweek (May 27). Ambac had been losing millions of dollars a month from the toxic structured securities it guaranteed. It had a total net loss in fourth quarter 2009 of $385.4 million. Failure to settle with the banks would have increased the amount of claims by more than $8 billion, the insurance commissioner told The Wall Street Journal. The plan will be presented for court approval somewhere around September, said an attorney for the insurance commission (Wisconsin State Journal.


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