Ambac Assurance Faces Lawsuit Over Alleged Financial Misconduct
Several noteholders of Ambac Assurance Corp., including Deutsche Bank Securities and Mudrick Capital Management, have filed a lawsuit against the bond insurer. The suit alleges that Ambac improperly transferred $65 million to its parent company, Ambac Financial Group.
According to a Bloomberg report, the creditors, which also include CQS and Shenkman Capital Management, initiated the lawsuit on March 12 in New York. They claim the transfer violated the terms of Ambac’s rehabilitation agreement in Wisconsin, which functions similarly to Chapter 11 bankruptcy for insurance companies. The noteholders state they haven’t received principal or interest payments on their notes since 2018.
The creditors involved in the lawsuit hold approximately 50% of the surplus notes. Ambac, once a prominent bond insurer before the 2008 financial crisis, struggled financially after the collapse of the market for collateralized debt obligations linked to US subprime mortgages. The company entered rehabilitation in 2010 and emerged from the process in 2018.
The lawsuit centers on the noteholders’ claim that the transfer of $65 million, used to acquire a stake in Beat Capital Partners Ltd., required approval from Wisconsin’s insurance commissioner because it exceeded $5 million. Despite Ambac having a pre-approval letter for co-investments, the creditors argue that the transaction was structured as an intercompany loan, thereby prioritizing the interests of shareholders over those of the noteholders.
Spokespeople for Ambac, the Wisconsin Office of the Commissioner of Insurance, Deutsche Bank, Mudrick Capital, and Shenkman Capital all declined to comment on the matter. A representative for CQS did not respond to Bloomberg’s request for comment.
According to the lawsuit, Ambac’s counsel characterized the noteholders’ claims as “based on erroneous and uninformed factual allegations and misleading statements,” regarding the Beat Capital investment as “incomplete and inaccurate.”
Bloomberg reported that Ambac’s surplus notes had a current principal balance of $519 million and unpaid interest of $475 million as of the end of 2023, based on a filing with the US Securities and Exchange Commission last year. The Wisconsin insurance regulator has only permitted two exceptional payments since the notes were issued in 2010 and has not approved any regular payments, according to the filing.
