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Long-Term Debt | 12 Months Ended
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Dec. 31, 2012
Long-Term Debt |
11. | LONG-TERM DEBT
The carrying value of long-term debt was as follows:
|  | December 31, 2012 |  |  | December 31, 2011 |
Ambac Assurance Corporation: |  |  |  |  |  |  |  |
5.1% surplus notes, general account, due 2020 |  | $ | 139,476 |  |  | $ | 213,790 |
5.1% surplus notes, segregated account, due 2020 |  |  | 6,502 |  |  |  | 6,020 |
5.1% junior surplus notes, segregated account, due 2020 |  |  | 4,192 |  |  |  | 3,791 |
Ambac Assurance long-term debt |  | $ | 150,170 |  |  | $ | 223,601 |
Variable Interest Entities: |  |  |  |  |  |  |  |
Total long-term debt |  | $ | 15,436,008 |  |  | $ | 14,288,540 |
Ambac Assurance Surplus Notes with a par amount of $1,210,821 and $2,000,000 at December 31, 2012 and 2011, respectively, are reported in long-term debt on the Consolidated Balance Sheet and have a scheduled maturity of June 7, 2020. These surplus notes were issued in connection with the Settlement Agreement, dated as of June 7, 2010, by and among Ambac Assurance, Ambac Credit Products LLC (“ACP”), Ambac and counterparties to credit default swaps with ACP that were guaranteed by Ambac Assurance, and were recorded at their fair value at the date of issuance. Since issuance, Ambac has accreted the discount into earnings using the effective interest method, based on an imputed interest rate of 53.9% at the date of issuance. All payments of principal and interest on the Surplus Notes are subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the Ambac Assurance Surplus Notes, such interest will accrue and compound annually until paid. At the time of issuance, Ambac Assurance entered into call option agreements to repurchase, at significant discounts to par, surplus notes with an aggregate par amount of $939,179. Certain of these call options were free-standing derivatives for accounting purposes and were carried at fair value as assets on the Consolidated Balance Sheets. In June 2012, Ambac Assurance exercised certain of these options and repurchased surplus notes with total par value of $789,179 for an aggregate cash payment of $188,446 pursuant to such call option agreements. The acquisition of surplus notes pursuant to such call option agreements had been approved by OCI and by the Rehabilitator, whose approval was conditioned upon the approval by the Rehabilitation Court, which was granted on June 4, 2012. Ambac Assurance had sought approval from OCI and the Rehabilitator to repurchase an additional $150,000 of Ambac Assurance Surplus Notes pursuant to a third call option agreement entered into with respect to such surplus notes, but OCI and the Rehabilitator declined to approve the repurchase. The carrying value of extinguished surplus notes and accrued interest less the fair value of the free-standing derivatives were below the call option exercise prices and, accordingly, for the year ended December 31, 2012, Ambac recognized a realized loss of $177,745. The remaining options to acquire surplus notes have expired. The Segregated Account Surplus Notes, with a par amount of $53,000 at December 31, 2012 and 2011, are reported in long-term debt on the Consolidated Balance Sheets, based on an imputed interest rate of 52.8% at the date of the issuance and have a scheduled maturity of June 7, 2020. All payments of principal and interest on the Segregated Account Surplus Notes are subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the Segregated Account Surplus Notes, such interest will accrue and compound annually until paid. The Segregated Account Junior Surplus Notes, with a par value of $36,082 at December 31, 2012 and 2011, are reported in long-term debt on the Consolidated Balance Sheet, based on an imputed interest rate of 58.3% at the date of the issuance and have a scheduled maturity of June 7, 2020. These junior surplus notes were issued in connection with a settlement agreement (the “OSS Settlement Agreement”) entered into among Ambac, Ambac Assurance, the Segregated Account and One State Street, LLC (“OSS”) with respect to the termination of Ambac’s office lease with OSS. The outstanding principal amount of one such note shall, according to its terms, be reduced based on (i) rents paid after the initial term of the lease entered into between OSS and Ambac Assurance as part of such settlement and (ii) the value of any distribution that OSS receives on account of its allowed claim in Ambac’s chapter 11 case, determined as set forth in the OSS Settlement Agreement. No payment of interest on or principal of the Segregated Account Junior Surplus Notes may be made until all existing and future indebtedness of the Segregated Account, including Segregated Account Surplus Notes, policy claims and claims having statutory priority have been paid in full. All payments of principal and interest on the Junior Segregated Account Surplus Notes are subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the Segregated Account Junior Surplus Notes, such interest will accrue and compound annually until paid. OCI disapproved of the requests of Ambac Assurance and the Rehabilitator of the Segregated Account, acting for and on behalf of the Segregated Account, to pay interest on all outstanding Surplus Notes issued by Ambac and the Segregated Account on the first and second scheduled interest payment dates of June 7, 2011 and June 7, 2012, respectively. The variable interest entity notes were issued by consolidated VIEs. Generally, Ambac is the primary beneficiary of the VIEs as a result of providing financial guarantees on the variable interest notes. Consequently, Ambac has consolidated these variable interest entity notes and all other assets and liabilities of the VIEs. Ambac is not primarily liable for the debt obligations of these entities. Ambac would only be required to make payments on these debt obligations in the event that the issuer defaults on any principal or interest due. Ambac’s creditors do not have rights with regard to the assets of the VIEs. The total unpaid principal amount of outstanding long-term debt associated with VIEs consolidated as a result of the financial guarantee provided by Ambac was $15,684,925 and $15,337,407 as of December 31, 2012 and December 31, 2011, respectively. The range of final maturity dates of the outstanding long-term debt associated with these VIEs is February 2013 to December 2047 as of December 31, 2012, and February 2012 to December 2047 as of December 31, 2011. As of December 31, 2012 and 2011, the interest rates on these VIEs’ long-term debt ranged from 0.39% to 12.63% and from 1.00% to 12.63%, respectively. At December 31, 2012 and 2011 VIE notes outstanding also included certificates with a par value of $14,588 and $35,600, respectively, issued through a secured borrowing transaction. Interest on the secured borrowing is payable monthly at an annual rate of 6.65%. The effective interest rate on the secured borrowing is 8.97%. Under the transaction, certain RMBS securities owned and guaranteed by Ambac Assurance were deposited into a bankruptcy remote trust to collateralize and fund repayment of the debt. These securities are included in Invested assets on the Consolidated Balance Sheets and had a current par outstanding of $266,848 and $329,129 as of December 31, 2012 and 2011, respectively, and a fair value of $201,329 and $172,880 as of December 31, 2012 and 2011, respectively. Interest and principal on the secured borrowing is payable from the first non-insurance proceeds from these pledged RMBS securities. Please refer to Note 3 for a detailed description of the VIEs. Final maturities of VIE long-term debt for each of the five years following December 31, 2012 are as follows: 2013—$660,050; 2014—$189,597; 2015—$576,268; 2016—$0; 2017—$0.

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- Definition The entire disclosure for long-term debt. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 + Details
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