Ambac Financial Group Inc. on Monday said it has reached a $101.9 million settlement of a dispute with the Internal Revenue Service, a key step in the bond insurer’s effort to emerge from bankruptcy.
The settlement calls for $1.9 million to be paid by Ambac, and for $100 million to be paid by its Ambac Assurance Corp. unit or a “segregated account” overseen by Wisconsin’s insurance commissioner that contains many of the unit’s obligations.
It also reduces by $1.1 billion Ambac’s net operating loss carry-forwards, which the company could otherwise use to reduce future tax liability.
In a statement, Chief Executive Diana Adams called the settlement fair and equitable to the company and creditors, and said it “puts us in a favorable position to emerge from bankruptcy.”
The settlement requires approval by U.S. Bankruptcy Judge Shelley Chapman in Manhattan. A hearing is scheduled for April 29.
Once the second-largest U.S. bond insurer, Ambac suffered big losses after it strayed from insuring municipal bonds and began guaranteeing bonds backed by home loans.
The New York-based company filed for Chapter 11 protection from creditors in November 2010, and in March 2012 won approval of its reorganization plan.
Last month, it reaffirmed that its common stock will be worthless following the New York-based company’s emergence from bankruptcy.
MBIA Inc, Ambac’s larger rival, won approval from New York insurance regulators in 2009 to split into a municipal guarantee business and a structured finance unit that also had large mortgage losses.
Shares of Ambac closed Monday down 0.13 cent at 4.77 cents on the Pink Sheets.
The case is In re: Ambac Financial Group Inc., U.S. Bankruptcy Court, Southern District of New York, No. 10-15973.