Earlier this month, Ambac Financial Group (ABK) disclosed possible bankruptcy plans in a filing with the Securities and Exchange Commission, saying it’s “highly unlikely” its main operating unit – muni-bond insurer Ambac Assurance Corp. – “will be able to make dividend payments” to the parent company for the foreseeable future. Now a group of hedge funds that hold residential mortgage-backed securities insured by Ambac filed a motion with the circuit court of Dane County, Wis., seeking to prevent any payments from the muni-bond insurance unit finding their way to the parent corporation. The complaint alleges the insurance unit funneled more than $230 million in dividends back to the parent company and certain preferred shareholders in 2008 and 2009. At a time when the parent company’s “financial condition was deteriorating precipitously, projected claims payments and loss impairments were mounting, and its liquid claims-paying resources were eroding,” according to the complaint. The complaint was filed Tuesday and seeks to recover this amount. The Wisconsin court is supervising the account into which more than $57 billion of policies insured by Ambac Assurance were transferred. Ambac owes $1.2 billion, including maturing principal of $122.2 million on senior notes due August 2011, and had just $56.7 million in cash, as of June 30. The company said in the SEC filing that it expects to have enough cash to pay expenses and debt into the second quarter, but “no guarantee can be given” that it will be able to do as much. The economic crisis has devastated Ambac Assurance because it wrapped too many mortgage-backed securities that crumbled as housing prices steadily plummeted. A phone call to Ambac wasn’t returned prior to publication. Write to Jason Philyaw.
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