Ambac May File Pre-Packaged Bankruptcy as Regulators Limit Cash

08.06.10

By Christine Richard

June 8 (Bloomberg) -- Ambac Financial Group Inc. said it is considering filing a prepackaged bankruptcy because it’s unable to take dividends from its bond insurance unit to cover holding company expenses.

“It is highly unlikely AAC will be able to make dividend payments to the company in the foreseeable future,” Ambac said in a regulatory filing dated today, referring to Ambac Assurance Corp., its principal operating unit.

Ambac Assurance, the second-largest bond insurer before the onset of the credit crisis, is issuing so-called surplus notes to policyholders rather than covering their full claims. Ambac announced yesterday that it replaced $16.4 billion of collateralized debt obligations backed by subprime mortgages in exchange for $2.6 billion in cash and $2 billion of newly issued surplus notes in AAC.

“The company’s liquidity and solvency are largely dependent on dividends and other payments from AAC and on the value of AAC after the surplus notes have been redeemed, repurchased or repaid in full,” the company said in the filing.

Source: BusinessWeek

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