Ambac tumbles into bankruptcy

Ambac Financial Group, a holding company for the bond insurer being restructured by state regulators in Wisconsin, filed for bankruptcy to reschedule payments on more than $1 billion in bonds and other claims.

The petition for Chapter 11 protection filed yesterday in Manhattan reported liabilities of $1.68 billion as of June 30 on an unconsolidated basis. Ambac Financial said this month it was trying to negotiate terms of a bankruptcy court restructuring with senior lenders.

Ambac Financial is the holding company of Ambac Assurance Corp., which has about $57.6 billion in policies insuring credit derivatives and other financial products that are being restructured by Wisconsin regulators, according to the company.

While state regulators handle workouts of US insurance companies, their holding companies can go through federal bankruptcy courts.

Ambac Financial said senior creditors didn’t agree to a so-called prepackaged plan for a quick restructuring, and it couldn’t raise capital as “an alternative.” Still, creditors agreed to a “non-binding term sheet that will serve as a basis for further negotiations,” Ambac Financial said.

That agreement may allow the company to emerge from bankruptcy “more expeditiously,” it said.

“If you don’t have a deal with creditors, it’s hard to predict who the new management will be on the other side of bankruptcy, how long the Chapter 11 will take, and how much it will cost,” said Evan Flaschen, a lawyer at Bracewell & Giuliani LLP who isn’t involved in the case. “It injects uncertainty.”

Ambac Financial said it would ask for a court order to restrict transfers of shares and claims to preserve about $7 billion in net operating losses.

Bank of New York Mellon Corp. was listed as the largest unsecured creditor, with claims totaling about $1.62 billion for its role as trustee to seven different types of notes. The Vanguard Group was listed as the largest shareholder, with 5.46 percent of the company’s stock.