AMBAC files Chapter 11 (Dealbook)

And were we not led to believe that only several months back, the failure of AMBAC would be catastrophic to the financial system.  The day has come, AMBAC is filing for bankruptcy.  Shall the fireworks begin?  Then again, maybe not.  Watching and learning.

NOVEMBER 8, 2010, 7:13 PM LEGAL/REGULATORY

Ambac Files for Bankruptcy

BY MICHAEL J. DE LA MERCED

Ambac Financial Group, the troubled bond insurer, filed for bankruptcy protection on Monday after seeking to negotiate a plan with its biggest creditors.

Ambac said in its filing, made in Manhattan federal bankruptcy court, that it has almost $1.7 billion worth of liabilities. It isn’t immediately clear whether the company had reached a pact with creditors over a “prepackaged” bankruptcy plan, which would shorten its time in Chapter 11 protection.

The company said last week that it had chosen to skip an interest payment on some of its bonds, accelerating their maturity and all but precipitating the bankruptcy filing.

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In its Chapter 11 petition, Ambac listed several groups of bondholders — all represented by the Bank of New York Mellon as trustee — as its largest creditors, with a total of $1.6 billion in claims.

The main regulator of Ambac’s operating subsidiary, Sean Dilweg, the Wisconsin insurance commissioner, moved this year to effectively split Ambac in two.

In October, the Wisconsin regulator began a process of “rehabilitation” for the so-called segregated account containing $50 billion worth of policies on mortgage-linked bonds. The plan prescribes a system of payments for affected customers, who will receive a mix of cash and debt for their policies. It is subject to approval by a Wisconsin judge.

Ambac is being advised by the Blackstone Group and the law firm Dewey & LeBoeuf.

Ambac’s Bankruptcy Filing