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Ambac Split Leaves Monorail Bond Default Probability

29.03.10

(Adds go to contact Las Vegas Monorail spokesman in the ninth paragraph.)

By Christine Richard and Darrell Preston

Parade 29 (Bloomberg) -- Holders of bonds sold by the Las Vegas Monorail Co. apposite won’t get their next payment due July 1 because the insurer, Ambac Economic Group Inc., won’t cover them.

The monorail, linking the municipality’s casinos, seeks to reorganize under Chapter 11 bankruptcy and has slightest funds to cover its next scheduled debt disbursement of $9.6 million in July, Wells Fargo, the trustee for the bonds, said in a Slog 26 announcement. While Ambac guarantees payments of $1.2 billion for the monorail, its demand has been transferred by Wisconsin insurance regulators to a segregated account that fleetingly can’t honor claims, according to the filing.

The sentence to halt payments on all troubled debt is “a unbelievable development,” said Matt Fabian, a superior analyst with Municipal Market Advisors in Westport, Connecticut. “How can you hand over any bond insurance policy if regulators take away any guaranty backing that policy?”

The halt marks the first spell that a regulator has raised the possibility that Ambac, which insures $256 billion of civil bonds, may be unable to pay current municipal cords insurance policy claims to preserve reserves for approaching obligations, said Alan Schankel, managing big cheese of Janney Montgomery Scott LLC in Philadelphia.

“This will firm the bleeding and make sure there is money elbow in the future,” Schankel said, occupation the series of transactions a “backdoor reorganization.”

Testify Takeover

Wisconsin Insurance Commissioner Sean Dilweg announced on Strut 26 that his office was taking over Ambac Assuredness Corp. liabilities that included policies sponsorship $35 billion in securities, many involving dicey mortgages. Dilweg’s office ordered the handover as part of a so-called rehabilitation to keep the entourage afloat and forestall an “uncontrollable intermingle for assets” among policyholders and counterparties.

Source: BusinessWeek