Canyon Capital Advisors LLC is gearing up to challenge Ambac Financial Group and its leadership by presenting its own nominees for the upcoming election to the bond insurer's board, sources familiar with the matter said on Wednesday.
Canyon Capital has been asking Ambac to look for methods that will accelerate the settlement of $4 billion in insurance claims, says Reuters. Canyon holds a 4.5 percent stake in the company and has built a vital economic interest in these claims.
While the details of the proposed slate are still being finalized, the hedge fund proposes to put up at least three nominees to stand for election on Ambac's six-member board of directors. Among the nominees under consideration for Canyon's slate are John Brecker, a partner of Drivetrain Advisors, and restructuring veteran Eugene Davis. However, both names cannot be reached for comment.
Business Insider reported that the policy claims relate to complex financial instruments like secured mortgage-backed securities, which began to see substantial defaults around 2007-2008. Canyon has pressured Ambac to send a request to its regulator, the Commissioner of Insurance of the State of Wisconsin, to accelerate the settlement of the claims. Meanwhile, Ambac argued that the matter was already handed down to the regulator.
Ambac's move of buying up as many claims is logical as it will reduce interest costs and the financial guarantor would then be able to pay less than it would require if it waited for them to mature, in terms of face value. According to Breaking Views, although acquiring many claims is a good idea, it could also hinder Ambac's ability to meet other liabilities. These include debt issued by the city of Puerto Rico and Chicago.
Canyon Capital has asked Ambac to practice commutation or offer policyholders cash for their policies. Canyon also suggested that Ambac could just buy back the claims itself in the open market. Recent date tells that Ambac held nearly 34 percent or $1.2 billion of the overdue obligations on the isolated account where the troubled insurance claims are held.
