News

October 13, 2022Client Alert

Ambac Closes the Book on the Rehabilitation of its Segregated Account

Ambac Assurance Corporation announced on Friday, October 7, that it has reached an agreement for $1.84 billion to settle its lawsuit against Bank of America that arose out of the residential mortgage foreclosure crisis. Ambac’s lawsuit alleged, among other things, that Countrywide Mortgage breached representation and warranty obligations by employing bad underwriting practices contrary to industry standards. Those breaches led to a reduction in the value of RMDS, or Residential Mortgages and Securities, that Ambac insured. The settlement is the last chapter of an insurance company reorganization, known as a Rehabilitation, that involved the Segregated Account of Ambac Assurance.

Back in 2010, the Office of the Commissioner of Insurance of Wisconsin (“OCI”) created a Segregated Account into which it placed entire categories of troubled insurance policies that insured risks such as mortgage-backed securities, student loans and collateralized debt obligations for Rehabilitation. OCI hired Michael Best in 2016 and charged our firm with devising a plan to satisfy unpaid insurance claims that had been outstanding for more than 8 years, manage possible adverse tax consequences, and win approval of the plan by the Dane County Circuit Court overseeing the Rehabilitation. The final plan called for issuance of $1.6 billion in new debt obligations and a further capital raise of $240 million that was the culmination of extensive settlement negotiations with bondholders, including hedge funds holding bonds issued by the Commonwealth of Puerto Rico, and insured by Ambac.

John D. Finerty, Jr. led the Michael Best client service team, Justin Mertz was second chair, assisted by Kim Streff, with Hamang Patel providing tax counsel and Michael Altman advising on SEC matters. This is another example of a great team effort and cooperation across practice group lines that achieved a favorable result for our client. Since then, Michael Best’s Banking & Financial Services Industry group has represented many other clients in reorganizations, negotiations with insurance regulators, as well as lenders. We bring unique experience and a refined skill set to serving clients in insurance industry rehabilitation matters and federal and state insolvency cases.

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