Ambac Financial Settles With IRS, Court Papers SayTiffany Kary and Patricia Hurtado
Ambac Financial Group Inc. and its bond-insurance unit will pay $101.9 million as part of a settlement with Manhattan U.S. Attorney Preet Bharara and U.S. tax authorities.
The agreement would include future possible payments of as much as $14.9 million and resolves a dispute stemming from tax methods, Bharara said in a statement today. The accord would bar Ambac from taking $1 billion in future offsets against its income. It includes a resolution with the Internal Revenue Service that paves the way for Ambac 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 yesterday.
“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 yesterday.
The settlement 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 yesterday’s 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 in Chapter 11. The plan relied on the 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).