The Work

November 2, 2010 6:43 PM

Dewey, Other Firms Prepare for Possible Ambac Bankruptcy

Posted by Brian Baxter

Ambac Financial Group, once the nation's second-largest bond insurer before suffering huge losses during the subprime mortgage crisis, could file for bankruptcy before year-end after skipping a $2.8 million bond interest payment.

Reuters reports that if Ambac cannot reach an agreement on a prepackaged bankruptcy filing soon, the company will seek Chapter 11 protection sometime this year without the support of its creditors. The decision not to make the interest payment was made by Ambac's board of directors and delineated in a regulatory filing on Monday.

"To date, [Ambac] has been unable to raise additional capital as an alternative to seeking bankruptcy protection," the company stated in an 8-K filing with the SEC. "As such, [Ambac] is currently pursuing with an ad hoc committee of senior debt holders a restructuring of its outstanding debt through a prepackaged bankruptcy proceeding. There can be no assurance that any definitive agreement will be reached."

Michael Groll, cochair of the insurance industry practice at Dewey & LeBoeuf, is advising Ambac along with corporate partners Barbara Goodstein and Richard Spitzer, insurance insolvency partner Peter Ivanick, and counsel Allison Weiss. Ambac has been a longtime client of the firm on various matters, although Dewey didn't start doing the company's outside corporate work until the past few years.

Ambac's general counsel Kevin Doyle once worked at LeBoeuf, Lamb, Greene & MacRae, a predecessor firm, before joining the New York-based company as assistant general counsel in 1991.

According to our previous reports on the troubled bond insurer, several other firms have also scored prominent roles. Davis Polk & Wardwell restructuring cohead Donald Bernstein is advising a group of major banks that have worked with Ambac on various transactions. 

Bingham McCutchen insurance practice chair Harold Horwich is representing about a dozen mutual funds that hold municipal bonds insured by Ambac. And Morrison & Foerster restructuring partner Anthony Princi is advising an ad hoc group of bondholders that are continuing to negotiate with Ambac on a possible prepackaged bankruptcy.

Foley & Lardner is representing Wisconsin's Office of the Commissioner for Insurance (OCI), a state regulator that earlier this year seized $64 billion in Ambac's worst assets tied to credit-default swaps and mortgage-backed securities and set up a special receivership fund to help repay the company's creditors. (Ambac's main insurance unit is based in Wisconsin.)

Ambac's plan of rehabilitation, which can be accessed on this Web page, was filed in early October. Confirmation hearings in Dane County, Wis., will start on November 15. The process is expected to last anywhere from five to ten days while testimony is heard on the rehabilitation for the "segregated account of Ambac Assurance Corporation," says one individual involved in the process.

When Wisconsin insurance commissioner Sean Dilweg seized Ambac's worst assets and liabilities earlier this year, the state regulator effectively split Ambac in two by creating a "segregated account" containing residential mortgage-backed securities and other policies that were put into rehabilitation. (Dilweg has appointed Kimberly Schaul, OCI's deputy commissioner of insurance, to serve as rehabilitator for that account.)

The general Ambac account, which runs its business under normal regulatory oversight, consists of the remaining municipal bonds and policies that continued to function properly after the economic cataclysm. In its 8-K, Ambac leaves no doubt about what its future holds.

"If the company is unable to reach agreement on a prepackaged bankruptcy in the near term, it intends to file for bankruptcy under Chapter 11 of the [U.S.] Bankruptcy Code prior to the end of the year," the company states. "Such filing may be with or without agreement with major creditor groups concerning a plan of reorganization. The filing for bankruptcy protection would accelerate the maturity of all of [Ambac's] indebtedness."

One Ambac board member, Laura Unger, is a former SEC commissioner and attorney with the agency's enforcement division in Washington, D.C. Ambac's debts currently total $1.6 billion.



The Ambac Bonanza, 3/26/10

Closer to an Ambac Bankruptcy, 6/9/10

Foley Bulks Up On Ambac Restructuring Bills, 7/28/10

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