NU Online News Service, Sept. 23, 2:56 p.m. EDT
Ambac Financial Group, Inc. (AFG) says it has reached an agreement with Wisconsin regulators over outstanding tax and expense-related issues surrounding subsidiary Ambac Assurance Corp.
Accordingly, AFG has submitted an amended bankruptcy reorganization plan, the New York-based bond insurer says.
The Wisconsin commissioner of insurance issued a statement saying that in reaching the agreement it “recognizes the advantages of reducing uncertainty and avoiding unnecessary litigation, as achieved by this settlement.”
In July, the Wisconsin commissioner raised objections to AFG’s reorganization plan saying it felt Wisconsin-based subsidiary Ambac Assurance would have to pay too much in tax treatments to the New York parent company.
AFG has been in Chapter 11 bankruptcy since late last year after several large financial institutions filed claims for collateralized debt obligations and other financial instruments the company insured during the Great Recession.
Ambac Assurance was placed into rehabilitation by the Wisconsin insurance commissioner in March 2010. As part of its rehabilitation plan, Ambac Assurance has set up a segregated account for some Ambac Assurance liabilities at the direction of the insurance commissioner. The segregated account has policies totaling approximately $57.6 billion as of June 2010, consisting of credit derivatives, residential mortgage-backed securities and other structured-finance transactions.
The Wisconsin department says AFG’s amended agreement allows the Ambac Assurance rehabilitator, Wisconsin Insurance Commissioner Theodore K. Nickel, “to remain focused on the rehabilitation of the segregated account of [Ambac Assurance].”
AFG says left unresolved in the agreement is a dispute between it and the Internal Revenue Service relating to the tax treatment of credit default swap contracts.
Successfully resolving this issue is a condition for implementation of the reorganization plan, AFG says.
If AFG is unsuccessful in reorganization, it has indicated that it would have to liquidate, which would have a “negative impact” on current policies.