A group of alternative asset managers (the “Ad Hoc Policyholder Group”) holding bonds totaling more than $3.3 billion in par exposure insured by Ambac Assurance Corporation’s (“AAC”) “General Account” has come together to advocate for the interests of General Account policyholders in AAC’s ongoing Wisconsin state-law rehabilitation proceedings. In the wake of the 2008-09 financial crisis, AAC entered into rehabilitation proceedings culminating in the approval of a plan that divided AAC’s liabilities into then-healthy “General Account” liabilities—consisting primarily of exposure to municipal and similar issuances—and “Segregated Account” liabilities—consisting primarily of exposure to structured finance products. AAC’s plan of rehabilitation is intended to foster the orderly rehabilitation of the troubled liabilities assigned to the Segregated Account while treating as structurally senior and fully preserving policy claims against the General Account.
The Ad Hoc Policyholder Group has retained Chadbourne & Parke LLP as its legal advisor in connection with the rehabilitation proceedings and ongoing communications with AAC and its regulator, the Wisconsin Commissioner of Insurance, who acts as AAC’s rehabilitator. Chadbourne’s mandate includes ensuring that any further distributions to holders of claims against the structurally subordinate Segregated Account do not impair AAC’s continuing ability to pay General Account creditors in full. The recently filed motion by certain creditors of the Segregated Account seeking to force a dramatic increase in the payment percentage of their claims illustrates the need for the Ad Hoc Policyholder Group’s participation in the process.
“Ambac’s General Account risk profile has changed dramatically since the Segregated Account was formed in 2010,” said Lawrence A. Larose, the Chadbourne partner leading the representation. “In particular, the General Account’s risk on bonds issued by the Commonwealth of Puerto Rico, Chicago, and their respective affiliates, to name just a few, presents a significant and growing challenge not anticipated at formation. Ambac’s obligation to our clients extends almost 40 years into the future and must be adequately addressed and provided for in any distribution to creditors of the Segregated Account,” Larose concluded.
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