Ambac restructuring may trigger CDS payments

NEW YORK, March 25 (Reuters) - Payments on credit default swaps insuring the policies of Ambac Financial Group's ABK.N insurance arm may need to be paid out, after state regulators said on Thursday that they are taking control of the company's worst assets.

Regulators in Wisconsin, where Ambac's main insurance unit, Ambac Assurance Corp, is legally based, ordered the insurer to set up a separate account to house liabilities from policies that have generated big losses. For details, see [ID:nN25237354]

UBS has submitted a request to an industry committee responsible for determining when CDS payments are triggered to resolve whether the regulatory intervention constitutes a bankruptcy under terms of the contracts, the International Swaps and Derivatives Association said on its website on Thursday.

Ambac Assurance will not need to pay out CDS protection it sold on risky assets after reaching agreement with its bank counterparties to separate the deals into a segregated account and suspend any payments from loan losses.

Contracts written by other parties, such as banks or fund managers, that reference the insurer's policies, however, may need to be paid if the ISDA committee determines the restructuring constitutes a bankruptcy.

Net volumes of around $2.9 billion are outstanding in CDS on Ambac Assurance, according to data by the Depository Trust & Clearing Corp. (Reporting by Karen Brettell; Editing by Leslie Adler)