Ambac Financial Group Inc. (ABKFQ:US), the bankrupt holding company for a failed bond insurer, will seek court approval of a settlement with the Internal Revenue Service that paves the way to finalize its bankruptcy.
The agreement, which still needs court approval, will give the IRS a $120 million claim in Ambac’s Chapter 11 case, according to court papers filed in Manhattan bankruptcy court today.
“This settlement puts us in a favorable position to emerge from bankruptcy and move forward with managing our existing business and exploring new business opportunities,” Diana Adams, Ambac’s President and Chief Executive Officer, said in a statement today.
It calls for Ambac to pay $1.9 million to the U.S., and its Ambac Assurance unit to pay $100 million. The agreement also limits Ambac’s ability to claim net operating losses for tax purposes, reducing its aggregate claim by about $1.1 billion, the company said in the statement.
A hearing on the proposed settlement is set for April 29.
In March 2012, Ambac won a judge’s final approval to reorganize its $1.7 billion in debt. The plan relied on a proposed settlement with the IRS.
Ambac’s bankruptcy case relied on close work with a Wisconsin regulator which has rehabilitated part of Ambac Assurance, and mediation with the IRS
Ambac Financial, which relied on dividends from the operating unit, filed for bankruptcy in November 2010, about two years after Ambac Assurance stopped selling new policies in 2008.
At the outset of the bankruptcy, Ambac sued the IRS and the IRS made a counter-claim, questioning how Ambac Financial used $7.3 billion in net operating losses, or NOLs, to account for its losses from credit default swaps.
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 data compiled by Bloomberg.
The holding company case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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