Ambac Will Pay $2.6bn to Settle $16.4bn of CDOs

Ambac Assurance Corp. (AAC), the principal operating subsidiary of bond-insurer Ambac Financial Group (ABK), agreed to settle collateralized debt obligations of asset-backed securtities (CDOs of ABS) with several counterparties. AAC disclosed in a filing Tuesday with the Securities and Exchange Commission (SEC) that it will pay the counterparties $2.6bn in cash and $2bn of newly issued surplus notes in order to settle financial insurance guaranty policies purchased before the onset of the financial crisis. The counterparties agreed to commute the guarantees on $16.4bn of CDOs. It means AAC repaid the institutions $0.16 for every dollar in cash, and little more than $0.12 on the dollar in new debt, for the original investments. The surplus notes bear a 5.1% annual interest rate and a June 7, 2020 maturity date. The settlement is part of a rehabilitation plan for AAC to wind down parts of its business. AAC first said in March it had agreed on a proposed settlement agreement with several counterparties to commute “substantially all” its remaining CDOs of ABS. AAC also said at the time that it established a segregated account to hold insurance policies related to residential mortgage-backed securities (RMBS) and other structured finance transactions for orderly runoff and settlement. Wisonsin insurance commissioner Sean Dilweg is the court-appointed rehabilitator of that segregated account. “The steps we’re taking are aimed at avoiding billions of dollars of losses, and will provide the best way toward a durable solution for all policyholders,” Dilweg told HousingWire in May. “There are very real and dramatic risks, if the orderly process we are pursuing is not preserved.” Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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