Ambac will pay supplements while Vegas monorail holders wait

Ambac Assurance Corp. will make additional payments on certain policies into a separate account the company has established to hold troubled debts during its access to bankruptcy. Las Vegas Monorail Bonds, the only major municipal police in the account, will see no additional payouts.

A Wisconsin court has approved a motion filed by the segregated account rehabilitator to allow Ambac to make cash payments in excess of 25%, the amount it has paid on account principal and interest since a decision by justice of September 2012, the surety the insurer announced on Friday. The bankrupt financial guarantor said it expects the surcharges to be paid on 14 residential mortgage-backed security policies starting this month.

“If we pay a higher cash percentage of certain separate account claims, we can trap the additional reimbursement amount before it leaks out of the trust,” Ambac chief executive Michael Fitzgerald said in a statement. E-mail. “Ultimately, we expect to recover more product by making the additional payments, and this will benefit all policyholders.”

Additional payments will be made on a case-by-case basis in the form of lump sums or varying proportions of all or part of outstanding unpaid claims, Ambac said. Payments on fourteen RMBS transactions will help capture cash flow from those receivables, Fitzgerald said.

The separate account, created in March 2010 to hold an initial net exposure of $50 billion to around 700 poorly performing assets, did not pay claims for more than two years until the 2012 court order. Ambac, which entered Chapter 11 in November 2010, also included in this account defaulted municipal debt issued for the Las Vegas monorail shuttle service.

The Las Vegas Monorail Bonds are not currently on the list to receive additional payments, Fitzgerald said. Some monorail debt owners objected to their original placement in the separate account and now say their exclusion from additional payments is discriminatory.

“With this new request, instead of offering the same treatment to all holders of authorized claims against the separate account, the rehabilitator is once again asking for a remedy that will discriminate against holders of LVM bonds”, Eaton Vance said in an objection last week before the court ruled. in favor of Ambac.

The monorail went bankrupt in January 2010 as tourism to the nation’s gambling capital dwindled, ultimately leaving Ambac with over $1.16 billion in future capital and interest. While more than 80% of the monorail’s original creditors opted to settle for a cash takeover bid in 2011, at least a dozen bondholders, including Eaton Vance, are awaiting an appeal filed in 2011 challenging their placement. in the charged account of RMBS.

“Eaton Vance continues to believe, as indicated in the case currently pending before the Wisconsin Court of Appeals, that the Las Vegas Monorail bonds were wrongly assigned to the separate account,” Eaton Vance said in a statement sent by e-mail. The company holds approximately $50 million worth of monorail bonds in various accounts.

The monorail, structured as a not-for-profit company, sold $650 million of AAA-rated bonds insured by Ambac. The high rating attracted some who were looking for a safe investment.

“For us, it was a retirement buy,” one retail investor who holds $500,000 of monorail bonds said in an interview. “Store them in my sock drawer for future retirement. Then they kind of threw us in a corner and said they’ll take care of us later and then they’ll make other payments. You can’t discriminate that way.

A former research analyst and portfolio manager, the Wisconsin-based investor said he was shocked his state ruled in favor of the insurance company, fearing the ruling would set a standard that other guarantors could follow.

“The purpose of the additional payments is to improve collections,” Fitzgerald said. “All policyholders, including LVM policyholders, will benefit from the higher recoveries. Doing a larger distribution to LVM holders would not result in the same kind of recovery.

Ambac emerged from bankruptcy in May 2013 and says it is exploring opportunities involving the development or acquisition of new financial services businesses. On July 8, the financial guarantor released a statement opposing Detroit’s restructuring plan, saying Michigan would be making a “grave mistake” if it supported Orr’s plan to enter Chapter 9.

The company insures $171 million of Detroit’s general obligation debt, including $93 million of tax-limited GO bonds and $78 million of unlimited-tax GO bonds. Ambac said it would honor customers with full payment of Detroit’s debt service, standard practice for policies in the company’s non-segregated account. The separate account’s total net par was $26.1 billion as of March 31, Fitzgerald said.

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