The sentence following Contact Information for Policyholders and
Investors should read: Additionally, OCI has established
resources for policyholders at the following web address:
www.ambacpolicyholders.com
(sted www.ambacocidocsite.com).
The corrected release reads:
AMBAC ESTABLISHES SEGREGATED
ACCOUNT FOR CERTAIN POLICIES
Wisconsin Insurance Department to
Oversee Rehabilitation of the Segregated Account
Ambac in Settlement Negotiations
with CDO of ABS Counterparties
Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) announced
today that, at the direction of the Office of the Commissioner of
Insurance of the State of Wisconsin (“OCI”), Ambac Assurance
Corporation (“AAC”), Ambac’s principal operating subsidiary, has
established a segregated account for certain of AAC’s liabilities,
primarily policies related to credit derivatives, residential
mortgage-backed securities (“RMBS”) and other structured finance
transactions. This action derives from OCI’s view that immediate
action is necessary to address AAC’s financial position. In
conjunction with the establishment of the segregated account, OCI
has commenced rehabilitation proceedings with respect to
liabilities contained in the segregated account in order to
facilitate an orderly run-off and/or settlement of those specific
liabilities. In addition, Ambac announced that it has reached a
non-binding agreement on the terms of a proposed settlement
agreement with several counterparties to commute substantially all
of its remaining collateralized debt obligations of asset-backed
securities (“CDOs of ABS”).
The segregated account established by AAC at OCI’s direction
will contain: (i) certain policies insuring or relating to credit
default swaps; (ii) all of its RMBS obligations (some of which will
be allocated to the segregated account after it is established);
(iii) certain other identified policies insuring troubled credits;
(iv) certain student loan policies; and (v) certain other
contingent liabilities including, but not limited to all of AAC’s
liabilities as reinsurer under certain reinsurance agreements. The
segregated account is supported by a $2 billion secured note issued
by AAC and an aggregate excess of loss reinsurance agreement
provided by AAC.
Pursuant to the verified petition filed on March 24, 2010 by OCI
in connection with the rehabilitation proceedings with respect to
the segregated account, OCI has stated that within approximately
six months it will seek the rehabilitation court’s approval for a
plan of rehabilitation in connection with the segregated account.
The verified petition states that the plan of rehabilitation will
provide, among other things, that policies in the segregated
account shall receive in respect of claims made, a combination of
cash and surplus notes. Prior to approval of the plan of
rehabilitation, claims in respect of segregated account liabilities
will not be paid.
Policy obligations not transferred to the segregated account
remain in the general account of AAC, and such policies are not
subject to and, therefore, not directly impacted by, the segregated
account rehabilitation plan. AAC is not, itself, in rehabilitation
proceedings.
Michael Callen, Chairman of the Board of Directors, commented,
“The Board has worked diligently over the past two years to forge
the best possible outcome for Ambac and its various stakeholders.
In light of OCI’s determination to take some sort of rehabilitative
action with respect to Ambac Assurance, the Board has determined,
after thoughtful and careful consideration, that compliance with
the direction of OCI to establish the segregated account of Ambac
Assurance and to consent to the terms of the proposed settlement
agreement of our CDO of ABS portfolio is the best alternative
available. The actions taken today, together with the proposed
settlement if effected, commute substantially all of our CDO of ABS
exposure at a substantial discount to the expected present value of
potential claims.”
Mr. Callen commented further, “While certain structured finance
asset classes and other credits have been segregated for
rehabilitation, virtually the entire insured municipal portfolio
remains outside the rehabilitation proceedings. The Ambac Board and
management team are committed to continuing to work hard to manage
our resources effectively in the service of all constituents.”
The proposed settlement agreement with CDO of ABS counterparties
provides that AAC will pay in the aggregate (i) $2.6 billion in
cash and (ii) $2.0 billion of newly issued surplus notes of AAC.
The surplus notes will have a maturity date of ten years from the
date of the closing. Interest on the surplus notes will be payable
at the annual rate of 5.1%. All payments of principal and interest
on the surplus notes will be subject to the prior approval of OCI.
If OCI does not approve the payment of interest on the surplus
notes, such interest will accrue and compound annually until paid.
The terms of the proposed settlement agreement, as negotiated to
date, may change prior to the closing or the transactions as
contemplated by the proposed settlement agreement may not close at
all.
Counterparties to credit default swaps insured by AAC
representing a significant portion of the net notional amount
outstanding as of December 31, 2009, have agreed to temporarily
forebear from accelerating the obligations of AAC under such credit
default swaps or asserting any claims against AAC or any affiliate
of AAC based upon the segregated account rehabilitation
proceedings.
Additional Information
Management believes that it will have sufficient liquidity to
satisfy its needs through the second quarter of 2011. However, as a
result of the rehabilitation actions taken by OCI, it is highly
unlikely that AAC will be able to make dividend payments to Ambac
for the foreseeable future. While Ambac does not believe the
segregated account rehabilitation constitutes an event of default
under its bond indenture, Ambac may consider, among other things, a
negotiated restructuring of its debt through a prepackaged
bankruptcy proceeding or may seek bankruptcy protection without
agreement concerning a plan of reorganization with major creditor
groups.
Further information about topics covered in this press release
can be found in the Form 8-K to be filed by Ambac at www.sec.gov or
on Ambac’s web site at www.ambac.com.
About Ambac
Ambac Financial Group, Inc., headquartered in New York City, is
a holding company whose affiliates provide financial guarantees and
financial services to clients in both the public and private
sectors around the world. Ambac’s principal operating subsidiary,
Ambac Assurance Corporation, a guarantor of public finance and
structured finance obligations, has a Caa2 rating (developing
outlook) from Moody’s Investors Service, Inc. and a CC rating
(outlook developing) from Standard & Poor’s Ratings
Services. Ambac Financial Group, Inc. common stock is listed on the
New York Stock Exchange (ticker symbol ABK).
Contact Information for Policyholders and Investors
Investors can call Ambac’s information line: from within the U.S.:
866 933-3063
from outside the U.S.:
212 502-1206
Additionally, OCI has established resources for policyholders at
the following web address: www.ambacpolicyholders.com
Contact Information for Media
Members of the media can contact the Company or its Public
Relations representatives via email by sending requests or
questions to: media@ambac.com
Forward-Looking Statements
This release contains statements that may constitute
“forward-looking statements” within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Any or all of management’s forward-looking statements here or in
other publications may turn out to be wrong and are based on
Ambac’s management current belief or opinions. Ambac’s actual
results may vary materially, and there are no guarantees about the
performance of Ambac’s securities. Among events, risks,
uncertainties or factors that could cause actual results to differ
materially are: (1) Ambac’s liquidity is currently
insufficient to fund its needs beyond the near term and failure to
successfully execute on its current strategies could result in it
running out of liquidity; (2) as a result of Ambac Assurance’s
deteriorating financial condition, regulators could commence
delinquency proceedings; (3) difficult economic conditions,
which may not improve in the near future, and adverse changes in
the economic, credit, foreign currency or interest rate environment
in the United States and abroad; (4) the actions of the U. S.
Government, Federal Reserve and other government and regulatory
bodies to stabilize the financial markets; (5) the risk that
market risks impact assets in our investment portfolio or the value
of our assets posted as collateral in respect of investment
agreements and interest rate swap and currency swap transactions;
(6) market spreads and pricing on insured CDOs and other
derivative products insured or issued by Ambac; (7) the risk
that holders of debt securities or counterparties on credit default
swaps or other similar agreements seek to declare events of default
or seek judicial relief or bring claims alleging violation or
breach of covenants by Ambac or one of its subsidiaries;
(8) default by one or more of Ambac Assurance’s portfolio
investments, insured issuers, counterparties or reinsurers;
(9) inadequacy of reserves established for losses and loss
expenses; (10) changes in capital requirements whether
resulting from downgrades in our insured portfolio or changes in
rating agencies’ rating criteria or other reasons; (11) the
risk that we may be required to raise additional capital, which
could have a dilutive effect on our outstanding equity capital
and/or future earnings; (12) our ability or inability to raise
additional capital, including the risks that regulatory or other
approvals for any plan to raise capital are not obtained, or that
various conditions to such a plan, either imposed by third parties
or imposed by Ambac or its Board of Directors, are not satisfied
and thus potentially necessary capital raising transactions do not
occur, or the risk that for other reasons the Company cannot
accomplish any potentially necessary capital raising transactions;
(13) credit risk throughout our business, including credit
risk related to residential mortgage-backed securities and
collateralized debt obligations (“CDOs”) and large single exposures
to reinsurers; (14) changes in Ambac’s and/or Ambac
Assurance’s credit or financial strength ratings; (15) risks
relating to the re-launch of Connie Lee as Everspan Financial
Guarantee Corp.; (16) competitive conditions, pricing levels
and reduction in demand for financial guarantee products;
(17) credit and liquidity risks due to unscheduled and
unanticipated withdrawals on investment agreements;
(18) legislative and regulatory developments, including the
Troubled Asset Relief Program and other programs under the
Emergency Economic Stabilization Act and other similar programs;
(19) changes in accounting principles or practices relating to
the financial guarantee industry or that may impact Ambac’s
reported financial results; (20) the risk of volatility in
income and earnings, including volatility due to the application of
fair value accounting, required under ASC Topic 815, to the portion
of our credit enhancement business which is executed in credit
derivative form, and due to the adoption of ASC Topic 944, which,
among other things, introduces volatility in the recognition of
premium earnings and losses; (21) the risk that our
underwriting and risk management policies and practices do not
anticipate certain risks and/or the magnitude of potential for loss
as a result of unforeseen risks; (22) operational risks,
including with respect to internal processes, risk models, systems
and employees; (23) factors that may influence the amount of
installment premiums paid to Ambac; (24) the risk of
litigation and regulatory inquiries or investigations, and the risk
of adverse outcomes in connection therewith, which could have a
material adverse effect on our business, operations, financial
position, profitability or cash flows; (25) the risk that
reinsurers may dispute amounts owed us under our reinsurance
agreements; (26) changes in tax laws; (27) other factors
described in the Risk Factors section in Part I, Item 1A of
our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 and also disclosed from time to time by
Ambac in its subsequent reports on Form 10-Q and Form 8-K, which
are or will be available on the Ambac website at www.ambac.com and
at the SEC’s website, www.sec.gov; and (28) other risks and
uncertainties that have not been identified at this time. Readers
are cautioned that forward-looking statements speak only as of the
date they are made and that Ambac does not undertake to update
forward-looking statements to reflect circumstances or events that
arise after the date the statements are made. You are therefore
advised to consult any further disclosures we make on related
subjects in Ambac’s reports to the SEC.
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