Ambac Financial Makes Settlement Offer to IRS and Files Third Amended Plan of Reorganization

NEW YORK--(BUSINESS WIRE)--

Ambac Financial Group Inc. ABKFQ (“Ambac Financial”) today announced that, after several months of negotiations, it has made a settlement offer to the Internal Revenue Service ("IRS") relating to the dispute regarding the tax treatment of CDS contracts. The principal terms of the settlement offer include: (i) a payment by the Segregated Account of Ambac Assurance Corporation (the "Segregated Account") of $100 million; (ii) a payment by Ambac Financial of $1.9 million; and (iii) the relinquishment by the Ambac Financial consolidated tax group of all loss carry-forwards resulting from losses on CDS contracts arising on or before December 31, 2010, to the extent such loss carry-forwards exceed $3.4 billion. The IRS has not yet accepted this settlement offer and there are no assurances that such offer will be accepted, that the final terms of any settlement will not change, or that a settlement can be finalized within a certain period of time. Finality of the settlement would require the satisfaction of certain conditions and the receipt of certain approvals, including approvals by the court presiding over Ambac Financial's chapter 11 case and the court presiding over the rehabilitation of the Segregated Account. Successful resolution of this long-standing dispute with the IRS is a condition precedent to consummation of the Amended Plan (as defined below).

On the basis of such settlement offer, Ambac Financial filed a Third Amended Plan of Reorganization (the "Amended Plan") with the U.S. Bankruptcy Court on February 24, 2012. The Amended Plan sets forth a description of the settlement offer to the IRS, certain revisions to the previously announced agreement with Ambac Assurance Corporation, the Segregated Account, the Wisconsin Office of the Commissioner of Insurance, the Rehabilitator of the Segregated Account, and the statutory committee of creditors in the chapter 11 case with respect to outstanding tax and expense-related issues between Ambac Financial and Ambac Assurance Corporation, and certain other changes. A copy of the Amended Plan can be obtained at http://www.kccllc.net/ambac under the heading "Court Documents."

The Amended Plan voting deadline remains February 29, 2012 at 5:00 p.m. (prevailing Pacific Time) and the Amended Plan objection deadline remains February 29, 2012 at 4:00 p.m. (prevailing Eastern Time). The Bankruptcy Court confirmation hearing for the Amended Plan remains scheduled for March 13, 2012.

About Ambac

Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provided financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac filed for a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Company will continue to operate in the ordinary course of business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. Ambac Financial Group, Inc.'s common stock trades in the over-the-counter market under the ticker symbol ABKFQ.

Ambac's principal operating subsidiary, Ambac Assurance Corporation, is a guarantor of public finance and structured finance obligations.