(Updates with memorandum in third paragraph.)
Dec. 29 (Bloomberg) -- Ambac Financial Group Inc.’s $27.1 million settlement of a class-action lawsuit was approved by a U.S. judge who said the deal was reasonable and would allow the bankrupt company to complete its Chapter 11 plan.
The Police and Fire Retirement System of Detroit had challenged the bankruptcy judge’s September approval of the deal, partly because it stops other parties from suing Ambac, the bankrupt holding company for a failed bond insurer.
In a memorandum and order filed in court today, U.S. District Judge Naomi Buchwald said the bankruptcy judge was right to approve the deal after determining the settlement fell “well above the lowest point in the range of reasonableness,” warranting its approval by court measures.
“Settlements are strongly favored in the bankruptcy context, as they help clear a path for the efficient administration of the bankrupt estate,” she wrote in the memorandum.
The shareholder suits against Ambac, which filed for bankruptcy in 2010, sought to recover losses suffered because of Ambac’s exposure to the credit crisis tied to subprime mortgages. Ambac will pay $2.5 million, and its insurers will pay the remaining $24.6 million, according to Buchwald.
Creditors’ votes on Ambac’s reorganization plan must be in by Jan. 30, Ambac said this month. The company listed liabilities of $1.68 billion in its initial Chapter 11 petition.
The holding company case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Thom Weidlich and Tiffany Kary in New York. Editors: Mary Romano
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