Ambac discussing $7.3b loss allocation with creditors, regulators
NEW YORK: An Ambac Financial Group Inc. lawyer told a bankruptcy judge that the holding company for a failed bond insurer is discussing with creditors and regulators how to allocate $7.3 billion in net operating losses.
Separately, Daniel Filor, a lawyer for the U.S. attorney's office, told the judge that the government believes a dispute over Ambac Financial's tax refund should be moved from bankruptcy court in New York to federal district court.
Ambac's principal insurance unit, Ambac Assurance Corp., was taken over by regulators, where the office of Wisconsin's insurance commissioner, known as OCI, is overseeing a rehabilitation of its $50 billion portfolio of policies that insure residential mortgagebacked securities.
"We're in trilateral negotiations with the committee and OCI with respect to a global solution," Ambac attorney Todd Padnos told U.S. Bankruptcy Judge Shelley Chapman in New York yesterday. He said an accord would resolve "the amount to be paid by Ambac Assurance to the holding company for items including tax refunds. Ambac's holding company separately is seeking an injunction to temporarily bar the Internal Revenue Service from seizing a $700 million refund, received from carrying back losses on credit-default swap contracts. It also asked for a declaratory judgment that it has no tax liability for 2003 to 2008 and is entitled to keep the full refund.
At yesterday's hearing, Filor said the U.S. plans to ask to move jurisdiction to a district court, which Ambac may oppose. "Novel and complex issues of federal tax law are appropriate to go before a federal district court," Filor said.
Ambac filed for bankruptcy Nov. 8, with liabilities of $1.68 billion as of June 30 on an unconsolidated basis.
Ambac said in its Chapter 11 bankruptcy that it needed to preserve about $7 billion in net operating losses. The IRS has challenged claims by both companies to tax deductions that they say were generated by those losses.
The IRS has agreed not to take enforcement action against Ambac or its subsidiaries without giving five days' notice. The agreement will remain in place until a hearing to decide whether Ambac can get a judgment. The agreement calls for the IRS to submit a reply to Ambac's motion by Dec. 31, and for Ambac to reply again by Jan. 18. The holding company case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan). -Bloomberg