Ambac Inching Closer To Settlement With IRS Over Taxes -Sources
Nov 14, 2011 14:36:10 (ET)
By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
NEW YORK (Dow Jones)--Ambac Financial Group Inc. (ABKFQ) is moving closer to a settlement with the Internal Revenue Service over possible tax liabilities that contributed to the bond insurer's Chapter 11 bankruptcy filing last year and wants court permission to give creditors more time to digest the details of any such settlement, according to people familiar with the matter.
In a Friday letter to Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan, Ambac lawyer Peter A. Ivanick said any settlement with the IRS would necessitate giving creditors more time to vote on whether to accept or reject the company's bankruptcy exit plan, "out of an abundance of caution."
"The debtor intends to submit to the Department of Justice, Tax Division, a proposal to settle such dispute which includes terms that the debtor believes will be acceptable to the United States," wrote Ivanick of Dewey & LeBoeuf LLP.
While the people familiar with the matter told Dow Jones that Ambac and the IRS are "close" to striking a deal over what may be tax liabilities valued at over $800 million, two people said it's unclear whether a settlement would be within a few days or a few weeks. Any deal would also have to be approved by the Wisconsin Office of the Commissioner of Insurance, which is in control of Ambac's operating arm.
The IRS dispute casts a cloud over everything Ambac does in bankruptcy court: The IRS has claimed that Ambac owes it $807.2 million in taxes and interest stemming from what it called improper accounting.
Ambac has said that the accounting was proper and it doesn't owe money for the taxes.
An Ambac spokesman declined to comment on the settlement talks, as did a Justice Department spokeswoman. Late last month, Ambac lawyers told Chapman that significant progress had already been made in settling the dispute.
On Thursday, Ambac will ask Chapman to push back until Jan. 4, 2012, the date until which creditors can vote on its reorganization plan from the Nov. 23 deadline currently in place. Ambac hopes to have the plan, which would cede control of the company to bondholders and wipe out existing equity holders, confirmed by the court on Jan. 19.
Last November, the Wisconsin insurance regulator issued an injunction that essentially protected Ambac's possible tax liabilities as part of a plan that placed in a segregated account about $68 billion of an Ambac insurance subsidiary's policies.
The IRS fought that decision, saying it should be a federal issue, but a federal judge disagreed and sent it back to state court. Then, earlier this year, a state court approved the injunction as part of a larger rehabilitation plan for Ambac Assurance.
Originally an insurer of municipal bonds, Ambac sold guarantees on billions of dollars of mortgage-backed securities and more complex vehicles known as collateralized debt obligations, or CDOs. When the housing meltdown hit, many of these securities turned toxic, leaving Ambac with heavy losses.
When it filed for bankruptcy last November, Ambac cited the possible tax liabilities. In the opening days of its bankruptcy proceedings, Ambac struck a temporary pact with the IRS requiring the agency give notice to Ambac before seeking to recover any money.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Daily Bankruptcy Review; 212-416-2152; joseph.checkler@dowjones.com
(END) Dow Jones Newswires
November 14, 2011 14:36 ET (19:36 GMT)
