(Adds details and background of settlement)
July 25 Ambac Assurance Corp said on Friday its final settlement in Detroit's bankruptcy case over the treatment of limited-tax general obligation bonds that it insured for the city would result in a 34 percent recovery, plus another possible 19 percent from a litigation reserve.
The reserve would contain funds related to litigation over Detroit's pension debt, according to Ambac. The reserve is based on certain notes the city will use for recoveries for some of its unsecured creditors.
"Ambac Assurance's share of the B notes may equate to a recovery of an additional 19 percent of its allowed claim with respect to the LTGO bonds," the bond insurer said in a statement.
"If the city loses the litigation, Ambac Assurance will not get any further recovery. If the litigation is settled, Ambac Assurance may get a partial incremental recovery," it added.
Detroit has asked the U.S. Bankruptcy Court to invalidate $1.45 billion of pension certificates of participation the city sold in 2005 and 2006.
Ambac previously entered into a settlement with Detroit over unlimited-tax GO bonds it insured for a recovery of 74 percent. The insurer said its exposure was $92 million for the LTGO bonds and $78 million for the UTGO bonds as of the city's bankruptcy filing in July 2013.
Ambac said it has continued to pay scheduled principal and interest on insured bonds in the wake of Detroit's default on debt it considered to be unsecured.
The settlements will be part of Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history. A confirmation hearing on the plan is scheduled to begin next month.
(Reporting by Karen Pierog; Editing by Dan Grebler)