Ambac Assurance Corporation, the bond insurance unit of Ambac Financial Group (ABK), has decided to withdraw $6.1 billion worth of charges against Lehman Brothers Holdings Inc. that it had filed in 2009.
Ambac Assurance will withdraw 60 claims it had filed against Lehman and its various subsidiaries for breaching obligations related to certain residential mortgage-backed securities.
This act of leniency on part of Ambac Assurance also implies a reciprocated favor from Lehman, which would likewise drop any charge filed against Ambac.
The U.S. Bankruptcy Court in New York will review the deal on October 20.
Ambac has been tangled in difficulties since the U.S. housing market collapsed in 2008. Previously, in November 2009, with the filing of the third quarter 2009 10-Q Ambac had announced that it might file for bankruptcy protection if it fails to pull through its cash position.
Following the state of Wisconsin taking control of some of its worst-hit assets (worth $64 billion) in March 2010, Ambac Financial once again resounded the warning.
During the second quarter of 2010, Ambac Financial Group narrowed its loss compared with the prior-year quarter. The company, however, continued to suffer as it incurred loss and loss expenses in consumer asset-backed securities and other structured finance exposures as well as a net operating loss in the Financial Services segment. However, a positive change in the fair value of credit derivatives was a partial offset.
Ambac is vigorously trying to lower its debt level. The company has been swapping debt for equity. On the flip side, equity issuance entails earnings dilution. With the number of outstanding shares increasing, earnings per share would fall if Ambac fails to report improved earnings, affecting investor confidence, going forward.
Headquartered in New York, Ambac Financial Group Inc. is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world.
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