Ambac, the bond insurer in bankruptcy reorganization, has proposed a settlement with the IRS over disputed accounting and filed a new reorganization plan with the bankruptcy court.
Ambac Financial Group said Monday that it has made an offer to the IRS that it hopes would settle accusations of improper accounting. Under the offer, made after several months of wrangling, Ambac would pay about $102 million. It would also give up tax benefits it could have reaped from past losses.
The tax dispute centers on how that Ambac accounted for contracts for credit default swaps, which are basically insurance protections that pay off when a company defaults on its debts.
The offer still has several hurdles to clear, including approval by the IRS and the court presiding over Ambac's bankruptcy filing. Ambac also said it had filed a new reorganization plan with the U.S. bankruptcy court. A hearing is March 13.
Ambac is trying to emerge from bankruptcy protection after filing for Chapter 11 in November 2010, after teetering near collapse as the housing market crumbled. Ambac was once the second-largest bond insurer in the U.S., but was struggling under heavy debt, dour ratings and quarterly losses. Wisconsin state regulators took over some of Ambac's most troubled assets in March 2010 because of fears that it would run out of money paying claims on policies backing risky structured finance transactions, including the credit default swaps. Last year, the CEO and general counsel resigned.
Bond insurers were once considered among the most stable companies, because they backed mostly government agencies selling debt to pay for municipal projects like road construction and school building -- creditors that rarely default.
That changed in the late 1990s, when the companies started guaranteeing financial instruments backed by risky home and commercial loans. When the housing market began deteriorating, it soon became clear that companies like Ambac had provided coverage for more than they could handle.