Exclusive: Canyon Capital prepares board challenge to Ambac - sources

Wed Mar 2, 2016 3:58pm EST
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By Michael Flaherty and Mike Stone

NEW YORK (Reuters) - Hedge fund Canyon Capital Advisors LLC is preparing to challenge the leadership of Ambac Financial Group Inc (AMBC.O: Quote) by putting its own nominees up for election to the bond insurer's board, people familiar with the matter said Wednesday.

Canyon, which holds a 4.5 percent stake in the company, has been seeking to persuade Ambac to find ways to accelerate the settlement of $4 billion in insurance claims. Canyon has built a significant economic interest in these claims, and so would benefit from such a move.

The hedge fund plans to put forward at least three nominees to stand for election on Ambac's six-member board of directors ahead of a March 15 deadline, the people said on Wednesday, setting up a proxy contest. Details of its proposed slate are still being finalized, the people added.

Among the candidates under consideration for Canyon's slate are restructuring veteran Eugene Davis and John Brecker, a partner of financial services firm Drivetrain Advisors.

Reuters could not immediately reach Davis or Brecker for comment.

The people familiar with the matter asked not to be identified because the deliberations are confidential. Ambac declined to comment, while Canyon did not immediately respond to requests for comment.

The policy claims relate to complex financial instruments such as secured mortgage-backed securities, which started to see heavy defaults around 2007-2008, helping to trigger the financial crisis. The stream of claims on Ambac led the insurer into bankruptcy in 2010.

Canyon previously pushed Ambac to ask its regulator, the Commissioner of Insurance of the State of Wisconsin, to accelerate Ambac's settlement of the claims. Ambac has argued the matter is entirely in the hands of the regulator.   Continued...

The Ambac building at One State Street Plaza is seen in New York March 5, 2008. REUTERS/Joshua Lott