Municipal Bond Forum
Ambac and the Las Vegas Monorail
Q
Do you believe Ambac will satisfy its obligations related to the Las Vegas Monorail issue? If not, why would any insurance company ever pay another claim? It appears that underwriting policies and collecting premiums without paying claims is a pretty lucrative business model.
A
James A. Klotz responds:
As stated in our article Ambac’s Woes and What They Mean to Muni Investors, insurance regulators in Wisconsin, the state in which Ambac is registered, forced the company to suspend payments linked to bad mortgages.
Inexplicably, the regulators allowed the majority of principal and interest required for municipal bond payments to be made with the exception of the Las Vegas Monorail issue.
Ambac is in bankruptcy. It is the Wisconsin regulators who dictated that payments due for the Las Vegas Monorail be suspended.
More to your point, Ambac, ACA and other troubled insurers are continuing to make principal and interest payments in accordance with their contractual obligations.
Unfortunately, holders of the Las Vegas Monorail bonds will almost certainly be subject to a much less than satisfactory resolution of this issue, as the monorail itself attempts to exit bankruptcy.
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