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.