(Updates with excerpt from filing in second paragraph.)
Oct. 13 (Bloomberg) -- Ambac Financial Group Inc. asked a bankruptcy court to hold a hearing to estimate the value of an $807.2 million tax claim, saying the company may run out of cash by 2012 if a dispute with the IRS isn’t resolved.
The alternative, a full trial on the issue, “would delay the bankruptcy case to such a degree that reorganization would otherwise be rendered impossible,” Ambac said in a filing yesterday in U.S. Bankruptcy Court in Manhattan.
Ambac, the holding company for a failed bond insurer, said it could run out of cash if it doesn’t exit bankruptcy by December, ending its ability to restructure. To complete the Chapter 11 case, Ambac needs to end a dispute with the Internal Revenue Service over the way it accounts for losses on credit- default swaps.
Those losses, or “net operating losses” are valued at $7 billion, according to Ambac. The company seeks to use $4.7 billion of the losses for future tax years, Ambac said in yesterday’s filing.
The IRS contends Ambac should return $807.2 million in tax refunds for 2007 and 2008. The bankruptcy court has the authority to rule on the IRS’s ability to stop Ambac from claiming the net operating losses and the legality of using the tax credit in the future, the company said.
U.S. Bankruptcy Judge Shelley Chapman has already approved the so-called disclosure statement that clears the way for creditors to vote on Ambac’s final Chapter 11 plan. Peter Ivanick, a lawyer for Ambac, told Chapman on Oct. 5 that the company, which has been mediating its dispute with the IRS, was close to resolving the issue.
Ambac’s operating unit, Ambac Assurance, was the second- largest bond insurer before the 2008 financial crisis, when mounting defaults on mortgages swamped the company with claims. It guaranteed about $256 billion of $1.4 trillion in insured municipal debt, according to Bloomberg data.
The holding company case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--Editors: Stephen Farr, Fred Strasser
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