The Wisconsin Insurance Commissioner’s Office on Tuesday was given court approval for a plan to restructure $50 billion in risky home-loan bonds and other troubled securities owned by Ambac Assurance Corp.
The plan, filed by former Commissioner Sean Dilweg, is designed to protect policyholders over the long haul and stabilize the company more immediately.
Under the plan, holders of defaulted mortgage-related securities would receive 25 percent of their permitted claims in cash, with the balance due in nine years at an interest rate of 5.1 percent.
“We were concerned the company wouldn’t have sufficient reserves to pay all valid claims,” said OCI’s deputy administrator Roger Peterson in a news release from the office. “Confirmation of the plan has mitigated that risk.”
Mounting claims from the risky policies defaulting as a result of the housing crisis had threatened the company’s core business, which is insuring the typically much safer bonds issued largely by municipalities across the country.
The company, which is owned by New York-based Ambac Financial Group, was the second largest U.S. bond insurer before the 2008 financial crisis. It holds $310 billion worth of municipal bonds, in addition to about 700 policies involving riskier mortgage-related investments that it branched into insuring starting in the 1990s.
In his confirmation of the plan in Dane County Circuit Court, Judge William D. Johnston said it satisfied state law and was more favorable to policyholders, creditors and the public than any of the alternative regulatory options, according to the news release.
The Wisconsin Insurance Commissioner’s Office in March moved to separate the risky accounts from the rest of Ambac Assurance Corp.’s business, but needed court approval to finalize the plan to pay policyholders. Ambac’s insurance unit is regulated in Wisconsin because it was founded here in the 1970s.
“We look forward to implementing the plan for the benefit of all policyholders,” said Wisconsin Insurance Commissioner Ted Nickel, who was appointed to replace Dilweg by new Gov. Scott Walker.
