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NU Online News Service, June 8, 3:30 p.m. EDT
Ambac Financial Group, Inc. has come to an agreement with policyholders to convert all of its remaining $16.4 billion of collateralized debt obligations of asset-backed securities in a combination cash and debt payment, the company said.
Ambac also reiterated its uncertain future up to and through the 2011 second quarter.
In a statement and filings with the Securities and Exchange Commission, the New York-based surety insurer late Monday said that its principal subsidiary, Ambac Assurance Corp. (AAC) entered into a settlement agreement where it will pay $2.6 billion in cash and $2 billion in newly issued surplus notes of AAC to its counterparties.
The notes will mature on June 7, 2020 with an annual interest rate of 5.1 percent.
Payments of principal and interest on the notes will be subject to prior approval by the Office of the Commissioner of Insurance for the State of Wisconsin, which is supervising AAC’s rehabilitation.
If Wisconsin regulators do not approve the payments, the principal and interest will accrue and compound annually until paid.
The company also said that certain non-CDO transactions amounting to $1.4 billion were commuted to cash payments of $96.5 million and it expects an additional $1.5 billion will be commuted to approximately $115 million in cash and $60 million of surplus notes within the next 12 months.
According to the SEC filing, all parties have released one another from any claims to any credit default swaps or financial guaranty insurance policies.
The company said in the filing that its management believes it has sufficient liquidity to get it through the second quarter of 2011, but it can give no guarantee that “it will be able to pay all of its operating and debt service obligations thereafter.”
The company added that its liquidity “may run out prior to the second quarter of 2011.”
The company said it may decide not to pay interest on its debt prior to the 2011 second quarter and as early as the 2010 second quarter. This failure would result in a default that would permit debt holders “to accelerate the maturity of the company’s outstanding debt.”
As a result, Ambac said it may try to raise more capital, negotiate a restructuring of its outstanding debt through bankruptcy, or seek bankruptcy without an agreement to reorganize.
The company noted that it could give no assurance that any of these plans would work.
A call to the office Wisconsin’s commissioner of insurance was not immediately returned.