Ambac offers to exchange auction market preferreds for surplus notes

By Wendy Van Sickle

Columbus, Ohio, July 3 – Ambac Financial Group, Inc. began an offer to exchange all of its Ambac Assurance Corp. subsidiary’s outstanding auction market preferred shares for 5.1% senior surplus notes due 2020, also to be issued by the subsidiary, plus cash from the parent company and warrants to purchase its common stock, according to a press release.

The auction market preferreds include $100 million of series A preferreds; $96.1 million of series B preferreds; $99,675,000 of series C preferreds; $94,475,000 of series D preferreds; $89 million of series E preferreds; $92,925,000 of series F preferreds; $15,775,000 of series G preferreds; and $72,325,000 of series H preferreds.

For each $25,000 liquidation preference of auction market preferreds tendered for exchange by the early participation time, holders will receive from Ambac Assurance $13,875 principal amount of 5.1% senior surplus notes, plus accrued interest from June 23 through the settlement date and from Ambac Financial $500 in cash and 37.3076 warrants to purchase an equivalent number of shares of common stock at an exercise price of $16.67 per share.

The early participation time is 5 p.m. ET on July 17. Holders who tender their notes after that time will not receive the cash consideration or the warrants.

Solicitation of proxies

Concurrently with the exchange offer, Ambac Assurance is soliciting proxies from holders of the auction market preferreds to vote in favor of a resolution to be passed at a special meeting of shareholders.

The resolution seeks to amend Ambac Assurance’s restated articles of incorporation to delete a section that provides for the purported rights of holders of auction market preferreds to elect Ambac Assurance directors in certain circumstances. The company is calling this amendment the charter amendment. The auction market preferred holders are also being asked to approve the purchase of the preferreds.

Eligible holders who wish to participate in the exchange offer must tender all of their auction market preferreds in the exchange offer and deliver their corresponding proxy in the proxy solicitation; except for certain holders who, pursuant to a preferred stock repurchase and support agreement, are permitted to withdraw a portion of their tendered auction market preferreds, but may not withdraw their corresponding proxies.

A special meeting for voting on the charter amendment will be held at 9 a.m. ET on July 18.

For the charter amendment to take effect, it must be approved by holders of at least two-thirds of the liquidation preference of auction market preferreds and by holders of at least two-thirds of the outstanding shares of Ambac Assurance common stock entitled to vote at the special meeting.

Holders representing 89% in liquidation preference of the outstanding auction market preferreds have agreed to support the charter amendment and preferred stock repurchase and have also committed to tender 80% of the total liquidation preference of the auction market preferreds, according to the release.

Ambac Financial holds all of the common stock of Ambac Assurance, so the quorum and requisite votes required at the special meeting would be assured, even if all other holders of auction market preferreds voted against the contemplated transactions, the release notes.

The consummation of the exchange offer and proxy solicitation are subject to a number of conditions, including an aggregate of 80% participation by liquidation preference outstanding from holders of auction market preferreds, the affirmative vote of holders of at least two-thirds in aggregate liquidation preference of auction market preferreds in favor of the transactions at the special meeting, receipt of a satisfactory tax opinion and receipt of approval of the Wisconsin Office of the Commissioner of Insurance pursuant to applicable law and operative documents.

The exchange offer and proxy solicitation are scheduled to expire at 5 p.m. ET on Aug. 1.

Only eligible holders under Rule 144A and Regulation S will be able to participate.

Moelis & Co. and Odeon Capital Group LLC are dealer managers for the exchange offers.

Epiq Corporate Restructuring (866 897-6433, 646 282-2500 or tabulation@epiqsystems.com) is information and exchange agent.

Ambac is a New York-based holding company that, via subsidiaries, provides financial guarantees to clients in the public and private sectors globally.

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