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Site updated May 24, 2012

Rehabilitator Files Report on Segregated Account

MADISON, WI, May 24, 2012 – The Rehabilitator of the Segregated Account of Ambac Assurance Corporation today filed the second Annual Report to the Circuit Court for Dane County, Wisconsin, the Honorable William D. Johnston presiding, on the Rehabilitation of the Segregated Account of Ambac Assurance Corporation. The report summarizes and describes certain events and developments in the rehabilitation proceeding that have occurred since the filing of the previous Annual Report on June 1, 2011.

Read the full report.

Notice from the Rehabilitator

MADISON, WI, May 23, 2012 – Wisconsin Commissioner of Insurance Theodore K. Nickel, acting in his capacity as the Rehabilitator of the Segregated Account of Ambac Assurance Corporation (Segregated Account), has filed an amended motion (the “Amended Motion”) for approval to allow Ambac Assurance Corporation (“Ambac”) to exercise two of three call options it holds to purchase certain surplus notes issued by Ambac on June 7, 2010 (“Surplus Notes”). Execution of both call options would result in Ambac’s purchase of approximately $789 million in principal amount of Surplus Notes at a significant discount. The Rehabilitator believes that exercising the two call options is in the best interest of Segregated Account policyholders because it will result in a significant increase over the recoveries they would receive if the call options were not exercised. The Rehabilitator’s initial motion, dated May 16, 2012 (the “Initial Motion”) sought approval for Ambac to exercise all three call options it holds, so as to include the purchase of an additional $150 Million in principal amount of surplus notes as part of the requested approval. The Rehabilitator has since decided not to pursue approval for Ambac to exercise the third call option.

The reasons for the Rehabilitator’s change in position from the Initial Motion to the Amended Motion and the supporting affidavit and exhibits are available at www.ambacpolicyholders.com.

Notice from the Rehabilitator

MADISON, WI, May 16, 2012 – Wisconsin Commissioner of Insurance Theodore K. Nickel, acting in his capacity as the Rehabilitator of the Segregated Account of Ambac Assurance Corporation (Segregated Account), announced today that he is seeking court approval to make interim policy claim payments to Segregated Account policyholders. If the interim payments are approved by the court, the Segregated Account will begin paying 25% of each policy claim that has arisen since the commencement of the rehabilitation proceedings, and 25% of each policy claim submitted in the future. As of March 31, 2012, approximately $3.2 billion in Segregated Account policy claims have arisen since the commencement of the rehabilitation proceedings.

The Plan of Rehabilitation, which was previously confirmed by the court in early 2011 and contemplates payment of 25% of each policy claim in cash and 75% in surplus notes, has not yet been made effective, pending resolution of certain tax considerations relating to the issuance of surplus notes.

“While the work on implementation of the Plan continues, we are pleased to begin making interim payments to policyholders in the near-term, subject to the approval of the court,” said Commissioner Nickel. “The decision to make interim payments at the rate of 25% was guided by balancing the interests of policyholders with current claims with the need to preserve sufficient cash to pay policy claims that are projected to arise in the future.”

The Rehabilitator is also seeking court approval of an offer of settlement made to the United States on behalf of the Internal Revenue Service (IRS), with respect to pending disputes over the tax treatment of credit default swap contracts and related matters (Offer). The Offer was jointly made by the Rehabilitator, the Wisconsin Office of the Commissioner of Insurance, Ambac Assurance Corporation (AAC), Ambac Financial Group Inc. (AFGI) and the Official Committee of Unsecured Creditors of AFGI on February 24, 2012. If approved by the court and accepted by the United States, the settlement contemplated by the Offer will resolve all related litigation with the IRS, eliminating uncertainty and avoiding further legal costs.

Finally, the Rehabilitator is seeking court approval of AAC’s proposed purchase of approximately $939 million in principal amount of surplus notes issued by AAC on June 7, 2010, for an aggregate cash payment of approximately $278 million. AAC is seeking to purchase the surplus notes pursuant to certain call options held by AAC on the surplus notes. “The purchase of the surplus notes at a substantial discount will increase the projected recovery to Segregated Account policyholders,” said Special Deputy Commissioner Roger A. Peterson.

“The filings made with the court today show meaningful progress in furtherance of the rehabilitation of the Segregated Account, and demonstrate our concerted effort to maximize recoveries for policy beneficiaries and other creditors,” said Commissioner Nickel.

The motions filed with the court and supporting affidavits and exhibits are available at www.ambacpolicyholders.com.

Rehabilitator Comments on Settlement Offer to the IRS

MADISON, WI, February 27, 2012 -- The Rehabilitator of the Segregated Account (Segregated Account) of Ambac Assurance Corporation (AAC) and the Wisconsin Office of the Commissioner of Insurance, in conjunction with AAC, Ambac Financial Group Inc. (AFGI) and the Official Committee of Unsecured Creditors of AFGI, have made a formal offer of settlement (Offer) to the United States on behalf of the Internal Revenue Service (IRS) with respect to pending disputes over the tax treatment of credit default swap contracts and related matters.

The terms of the Offer include: (i) a payment by the Segregated Account of approximately $100 million; (ii) a payment by AFGI of approximately $1.9 million and (iii) AFGI’s consolidated tax group (including AAC and the Segregated Account) will retain the ability to use all loss carry-forwards resulting from losses on credit default swap contracts and arising on or before December 31, 2010 subject to a limit of $3.4 billion on such loss carry-forwards.

The Rehabilitator believes the Offer is in the best interest of policyholders and other creditors of the Segregated Account as it represents an important incremental step in furtherance of the rehabilitation process by resolving all related litigation with the IRS, eliminating uncertainty and avoiding further legal costs.

The IRS has not yet accepted this Offer and there are no assurances that the Offer will be accepted, that the final terms of any settlement will not change or that a settlement can be finalized within a certain period of time. Finality of the settlement will require the satisfaction of certain conditions and the receipt of certain approvals, including approvals by the court presiding over AFGI’s Chapter 11 case and the court presiding over the rehabilitation of the Segregated Account.

Rehabilitator Comments on Filing
by Ambac Financial Group

MADISON, WI, September 27, 2011 -- The Rehabilitator of the Segregated Account (Segregated Account) of Ambac Assurance Corporation (AAC) acknowledges the Form 8-K filed today by Ambac Financial Group, Inc. (AFGI), regarding the Mediation Agreement entered into on September 21, 2011 among AFGI, AAC, the Segregated Account, the Wisconsin Office of the Commissioner of Insurance (OCI), the Rehabilitator, and the Official Committee of Unsecured Creditors of Ambac Financial Group, Inc. (the Creditors Committee).

Subject to satisfaction of all required conditions, the Mediation Agreement resolves all outstanding tax and expense-related issues between AFGI and AAC, and provides an unconditional, full and complete release of all claims that AFGI and the members of the Creditors Committee may have against OCI, the Rehabilitator, AAC and the Segregated Account. The Form 8-K summarizes the terms and conditions of Mediation Agreement, and is accessible at http://ir.ambac.com/phoenix.zhtml?c=80774&p=irol-sec.

As set forth in the Mediation Agreement, within 30 days of the filing of AFGI’s First Amended Plan of Reorganization in the bankruptcy court, the Rehabilitator will file a motion in the Dane County Wisconsin Circuit Court to obtain the Court’s approval of the transactions contemplated by the Mediation Agreement. The terms and conditions of the Mediation Agreement, and its benefits for policyholders and creditors of the Segregated Account, will be explained in greater detail in the Rehabilitator’s motion for approval.

Rehabilitator Comments on Agreement
with Ambac Financial Group

MADISON, WI, September 21, 2011 -- The Rehabilitator of the Segregated Account of Ambac Assurance Corporation (AAC) is pleased that a negotiated settlement has been achieved between and among Ambac Financial Group (AFG), the Rehabilitator, the Office of the Commissioner of Insurance for the State of Wisconsin, the Official Creditors Committee of AFG, and AAC. The Rehabilitator recognizes the advantages of reducing uncertainty and avoiding unnecessary litigation, as achieved by this settlement. It further allows the Rehabilitator to remain focused on the rehabilitation of the Segregated Account of AAC.

Rehabilitator Comments on AFGI’s
Postponement of its Bankruptcy Hearing

MADISON, WI, July 29, 2011 – The Office of the Commissioner of Insurance, as Rehabilitator of the Segregated Account of Ambac Assurance Corporation (AAC) acknowledges recent decisions by Ambac Financial Group, Inc. (AFGI) to postpone the hearing in the U.S. Bankruptcy Court for the Southern District of New York on the adequacy of its Disclosure Statement until September 8, 2011 and to extend the deadline for solicitation of votes on its Plan of Reorganization until October 25, 2011.

AFGI’s court filings on July 25 and 26, 2011, cite the need to provide more time for negotiations of disputed issues and a related mediation among AFGI, certain of its creditors, AAC as AFGI’s principal operating subsidiary, and the Rehabilitator of the Segregated Account, which primarily involve the allocation of net operating losses (NOLs) as between AFGI and AAC. Postponing the bankruptcy court deadlines also provides additional time for the Rehabilitator’s recently-retained advisor, PricewaterhouseCoopers, to better analyze and provide guidance to the Rehabilitator regarding certain complex tax issues relevant to the Segregated Account rehabilitation.

The Rehabilitator wishes to emphasize that, as noted in paragraph 11 of the AFGI court filing, the $2 million paid by AAC in conjunction with the postponement of the AFGI bankruptcy hearing was a contribution by AAC towards the litigation costs AFGI has incurred in connection with the pending adversary proceeding against the IRS and can be offset against future settlements with AFGI. AAC will benefit directly from a successful outcome in that case against the IRS.

The Rehabilitator remains vigilant about protecting the interests of Segregated Account policyholders.

Rehabilitator Comments on AFGI
Proposed Plan of Reorganization

MADISON, WI, July 7, 2011 – The Rehabilitator of the Segregated Account of Ambac Assurance Corporation does not believe that the reorganization plan proposed by Ambac Financial Group, Inc. (“AFGI”) is in the best interests of policyholders of the Segregated Account, or for that matter, those of the AFGI creditors. The Rehabilitator engaged in discussions for several months with AFGI and its bankruptcy Creditors Committee to see if mutually agreeable terms could be arrived at for equitably allocating net-operating-loss tax attributes and certain other resources between AFGI, Ambac Assurance Corp. and the Segregated Account. The Rehabilitator’s objectives in those discussions have been to protect the interests of and maximize value for policyholders and policy beneficiaries of the Segregated Account.

Despite the Rehabilitator’s best efforts to facilitate a fair resolution of issues, the parties reached an impasse. AFGI, pushed by its creditors, has filed a proposed bankruptcy plan of reorganization to restructure the debt of AFGI on terms which are inconsistent with the consensual direction of the recent negotiations with the Rehabilitator. The AFGI plan proposes to employ litigation to try to divert value from the Segregated Account. The Rehabilitator will vigorously contest that litigation.

OCI Submits Application for Engagement of Roger A. Peterson as Special Deputy Commissioner

MADISON, WI, June 10, 2011 – The Office of the Commissioner of Insurance has submitted an application to the Circuit Court for Dane County in Wisconsin, to approve the engagement of Roger A. Peterson as Special Deputy Commissioner for the Segregated Account of Ambac Assurance Corporation.

The application states that under a consulting agreement reached between Mr. Peterson and Theodore K. Nickel, Commissioner of Insurance, Mr. Peterson will resign his position as the Deputy Administrator of the Division of Regulation and Enforcement at OCI and move to New York to devote his full-time professional efforts and time to the performance of the Special Deputy Commissioner of the Segregated Account. The agreement is subject to approval from the Court.

Over the course of the Rehabilitation process, which commenced on March 24, 2010, it has become increasingly evident to Commissioner Nickel and OCI that the role of Special Deputy Commissioner in a rehabilitation process of this magnitude and complexity demands a person working full-time on matters pertaining to the Segregated Account and who can be regularly on-site in the insurer’s offices in New York.

Earlier this year, Commissioner Nickel concluded that one person at OCI could no longer occupy a dual role of supervising regulatory duties on matters unrelated to Ambac in Wisconsin and also as Special Deputy Commissioner for the Segregated Account. Commissioner Nickel concluded that it was necessary to engage an independent contractor to serve full-time in the role of Special Deputy Commissioner who would be based on-site in New York. In this role, Mr. Peterson will report to the Rehabilitator and will be subject to the authority of the Rehabilitator.

The application cites Mr. Peterson’s two decades of experience in the financial examination of insurers and his proven ability to address the unique and complex challenges posed by this rehabilitation. He has been directly involved in assessing and addressing Ambac’s financial situation since its long-term outlook began to deteriorate in late 2007 and early 2008.

The application was filed in Circuit Court on June 8, 2011.

Rehabilitator Files Report on Segregated Account

MADISON, WI, June 1, 2011 – The Rehabilitator of the Segregated Account of Ambac Assurance Corporation today filed a report on the Rehabilitation of the Segregated Account to the Circuit Court for Dane County in Wisconsin, the Honorable William D. Johnston presiding. The report advises the Court and all interested parties on the current status of the Plan of Rehabilitation, which was confirmed by the Court on January 24, 2011. The report also summarizes and describes certain developments in the rehabilitation proceeding since March 24, 2010.

Report on the Rehabilitation of the Segregated Account of Ambac Assurance Corporation

Notice from the Rehabilitator

MADISON, WI, May 31, 2011 – As previously noted on this site, the Rehabilitator of the Segregated Account of Ambac Assurance Corporation is evaluating certain tax and litigation issues and current claims development information with respect to the confirmed Plan of Rehabilitation, the timing of making it effective, and the possibility of modifications. While that assessment continues, the Rehabilitator expects that the legal challenges to the confirmed Plan will proceed as presently scheduled before the Wisconsin Court of Appeals. The Rehabilitator is proceeding accordingly.