By Jonathan Stempel
NEW YORK, Aug 30 (Reuters) - Investors in debt insured by Ambac Financial Group Inc's operating unit sought court permission to bar the bond insurer, which has said it may seek bankruptcy protection, from taking assets at their expense.
Monday's request came five months after Wisconsin insurance regulators seized some $64 billion of Ambac's worst assets, after the global credit crisis left it obligated to make big payouts on debt it insured, straining capital.
This sum included more than $1 billion of residential mortgage debt insured by Ambac Assurance Corp that the investors, which are mostly hedge funds, say they own.
According to papers filed with a Wisconsin state court, the investors want to block Ambac from conduct any 'fraudulent transfer' of Ambac Assurance assets for its benefit.
They also want to recoup more than $230 million of dividend payouts allegedly made by Ambac Assurance in 2008 and 2009 as its finances were deteriorating.
'The shared leadership teams of both Ambac and AAC have chosen to turn a deaf ear' to investors, 'while at the same time diverting value to the parent company at policyholder expense,' the investors said in a statement.
Ambac did not immediately return a call seeking comment.
The investors include Aurelius Capital Management LP, Fir Tree Inc, King Street Capital LP, King Street Capital Master Fund, Monarch Alternative Capital LP and Stonehill Capital Management LLC.
While Wisconsin put the $64 billion of assets into a segregated account, the investors believe they are entitled to sue Ambac, the parent.
They asked the Wisconsin court for permission to sue in New York State Supreme Court in Manhattan.
Like its rival MBIA Inc, Ambac has struggled with large losses stemming from risky mortgage securities.
Since credit conditions began to tighten three years ago, both lost the coveted 'triple-A' credit ratings on which they depended to insure a wide range of bonds.
Ambac has said it may need to file for bankruptcy, which may involve a 'prepackaged' reorganization.
It said on Aug. 9 a bankruptcy is possible if it is unable to restructure its liabilities by the second quarter of 2011.
The case is In re: Rehabilitation of Segregated Account of Ambac Assurance Corp, Wisconsin Circuit Court, Dane County, No. 10-1576.
(Reporting by Jonathan Stempel and Paritosh Bansal in New York; Editing by Bernard Orr) Keywords: AMBAC/LAWSUIT (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Aug 30 (Reuters) - Investors in debt insured by Ambac Financial Group Inc's operating unit sought court permission to bar the bond insurer, which has said it may seek bankruptcy protection, from taking assets at their expense.
Monday's request came five months after Wisconsin insurance regulators seized some $64 billion of Ambac's worst assets, after the global credit crisis left it obligated to make big payouts on debt it insured, straining capital.
This sum included more than $1 billion of residential mortgage debt insured by Ambac Assurance Corp that the investors, which are mostly hedge funds, say they own.
According to papers filed with a Wisconsin state court, the investors want to block Ambac from conduct any 'fraudulent transfer' of Ambac Assurance assets for its benefit.
They also want to recoup more than $230 million of dividend payouts allegedly made by Ambac Assurance in 2008 and 2009 as its finances were deteriorating.
'The shared leadership teams of both Ambac and AAC have chosen to turn a deaf ear' to investors, 'while at the same time diverting value to the parent company at policyholder expense,' the investors said in a statement.
Ambac did not immediately return a call seeking comment.
The investors include Aurelius Capital Management LP, Fir Tree Inc, King Street Capital LP, King Street Capital Master Fund, Monarch Alternative Capital LP and Stonehill Capital Management LLC.
While Wisconsin put the $64 billion of assets into a segregated account, the investors believe they are entitled to sue Ambac, the parent.
They asked the Wisconsin court for permission to sue in New York State Supreme Court in Manhattan.
Like its rival MBIA Inc, Ambac has struggled with large losses stemming from risky mortgage securities.
Since credit conditions began to tighten three years ago, both lost the coveted 'triple-A' credit ratings on which they depended to insure a wide range of bonds.
Ambac has said it may need to file for bankruptcy, which may involve a 'prepackaged' reorganization.
It said on Aug. 9 a bankruptcy is possible if it is unable to restructure its liabilities by the second quarter of 2011.
The case is In re: Rehabilitation of Segregated Account of Ambac Assurance Corp, Wisconsin Circuit Court, Dane County, No. 10-1576.
(Reporting by Jonathan Stempel and Paritosh Bansal in New York; Editing by Bernard Orr) Keywords: AMBAC/LAWSUIT (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.