scc Doc 812 Filed 02/10/12 Entered 02/10/12 16:44:16 Main Document Pg 1 of 5

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1 Pg 1 of 5 MORGAN, LEWIS & BOCKIUS, LLP 101 Park Avenue New York, New York Telephone: (212) Facsimile: (212) Wendy S. Walker MORGAN LEWIS & BOCKIUS LLP One Market Street, Spear Street Tower San Francisco, California Telephone: (212) Facsimile: (212) Attorneys for Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas, as Trustees UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: AMBAC FINANCIAL GROUP, INC., Chapter 11 Case No (SCC) Debtor LIMITED OBJECTION OF DEUTSCHE BANK NATIONAL TRUST AND DEUTSCHE BANK TRUST COMPANY AMERICAS, AS TRUSTEES, TO PROPOSED SECOND AMENDED PLAN OF REORGANIZATION Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas (collectively, the Trustees ) each acting solely in its capacity as trustee for certain residential mortgage-backed securities, other asset-backed securities, collateralized loan obligation and/or collateralized debt obligation trusts (collectively, the Trusts ) insured by Ambac Assurance Corporation and/or its affiliates pursuant to Policies allocated to the Segregated Account pursuant to the Rehabilitation of Segregated Account of Ambac Assurance Corporation, pending in the Circuit Court of Dane County, State of Wisconsin ( Rehabilitation Proceedings ), 1

2 Pg 2 of 5 through their undersigned counsel, file this limited objection to the Debtor s proposed Second Amended Plan of Reorganization [Dkt. No. 599] (the Plan ), and respectfully represent as follows: release : The Debtor s Plan 1. The latest version of the Plan on file with the Court includes the following deemed To the extent permitted by applicable law, as of the Effective Date, each Entity... shall be deemed to have... released and discharged the Released Parties from any and all Claims and Causes of Action of any nature whatsoever,... ; provided, however, that the foregoing shall not apply to (i) any act which constitutes a bankruptcy crime under title 18 of the United States Code, (ii) any obligations of the Reorganized Debtor pursuant to the Plan and (iii) any claims arising under the Amended TSA, the Cost Allocation Agreement, the Cooperation Agreement, the Mediation Agreement or any other documents entered into in connection with the Amended Plan Settlement.... Plan, Art. VIII, E (the Third Party Release ) (emphasis added). 2. The term Released Parties is broadly defined in the Plan, as follows: Released Parties means, collectively, the Debtor, the Reorganized Debtor, AAC, the Segregated Account, OCI, the Rehabilitator, the board of directors and board committees of the Debtor and AAC, all current and former individual directors, officers, or employees of the Debtor and AAC, the Committee and the individual members thereof, the Indenture Trustees, the Informal Group and the individual members thereof, and each of their respective Representatives (each of the foregoing in its individual capacity as such). Plan, Art. I (emphasis added). Limited Objection 3. The Trustees are concerned that, pursuant to the above-referenced provisions, the Trustees could be deemed erroneously to have released their Claims (defined in the Plan to have the meaning given in the Bankruptcy Code) against (i) AAC (defined in the Plan to mean Ambac Assurance Corporation), (ii) the Segregated Account (defined in the Plan to mean the segregated account of AAC, established pursuant to a plan of operation which sets forth the 2

3 Pg 3 of 5 manner by which AAC shall establish and operate such segregated account in accordance with Wis. Stat (2 ); (iii) OCI (defined in the Plan to mean the Office of the Commissioner of Insurance for the State of Wisconsin in its role as regulator of AAC, and/or the Commissioner of Insurance for the State of Wisconsin in his role as rehabilitator of the Segregated Account, as applicable ) and/or (iv) the Rehabilitator (defined in the Plan to mean the Commissioner of Insurance for the State of Wisconsin, as rehabilitator of the Segregated Account ). 4. The Claims of the Trustees against AAC and the Segregated Account in respect of Policies issued by and agreements with AAC are already the subject of the Rehabilitation Proceedings pending in the Circuit Court of the State of Wisconsin, Dane County. See In the Matter of the Rehabilitation of the Segregated Account of Ambac Assurance Corporation, Case No. 10 CV 1576 (Wis. Cir. Ct., Dane Co.).. 5. The Trustees have been informed that the version of the Plan that was distributed to parties in interest along with the court approved Disclosure Statement in this case contains an exception to the Third Party Release that was not included in the version of the Plan on file with the Court, as follows: provided, however, that the foregoing shall not apply to... (ii) any claims that policyholders may have against AAC or the Segregated Account pursuant to their respective policies,... (the New Exception ). Thus, it appears that the version of the Plan on file with the Court is not the same as the version of the Plan upon which parties in interest voted. 6. The Trustees have been advised that AFGI intends to file a Third Amended Plan of Reorganization that will include the New Exception and additional clarifying language such that the revised Third Party Release will read as follows (new language in bold and underlined): To the extent permitted by applicable law, as of the Effective Date, each Entity that has held, holds, or may hold a Claim or an Equity Interest, as applicable, in consideration for the obligations of the Debtor under the Plan, the Plan distributions, and other agreements, securities, instruments, or other documents executed or delivered in connection with the 3

4 Pg 4 of 5 Plan, shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever released and discharged the Released Parties from any and all Claims and Causes of Action of any nature whatsoever, including any derivative Claims asserted by or on behalf of the Debtor, that such entity would have been legally entitled to assert based upon or relating to any act, omission, transaction, event, or other occurrence taking place on or prior to the Effective Date and based upon or relating to the Debtor, the Estate, the Reorganized Debtor, the Chapter 11 Case, or the preparation, negotiation, or implementation of the Plan or Disclosure Statement; provided, however, that the foregoing shall not apply to (i) any act which constitutes a bankruptcy crime under title 18 of the United States Code, (ii) any claims that policyholders may have against AAC or the Segregated Account pursuant to their respective policies, (iii) any obligations of the Reorganized Debtor pursuant to the Plan and (iv) any claims arising under the Amended TSA, the Cost Allocation Agreement, the Cooperation Agreement, the Mediation Agreement or any other documents entered into in connection with the Amended Plan Settlement. Notwithstanding anything to the contrary in the Plan, One State Street, LLC shall continue to be entitled to the benefits set forth in the OSS Settlement Agreement. 7. As of the date hereof, AFGI has not filed a Third Amended Plan of Reorganization and, therefore, the Trustees object to confirmation of any Plan that purports to alter their rights with respect to any Claims they may have against AAC, the Segregated Account, OCI and/or the Rehabilitator, including without limitation those described at paragraph 3, above. 4

5 Pg 5 of 5 Conclusion WHEREFORE, the Trustees respectfully request that the Court not confirm the Plan unless it is modified as set forth above and for such other and further relief as this Court deems just and proper. Dated: New York, New York February 10, 2012 MORGAN LEWIS & BOCKIUS LLP By: /s Wendy S. Walker Wendy S. Walker, Esq. Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY Tel: Fax: wwalker@morganlewis.com John M. Rosenthal, Esq. Kristine E. Bailey, Esq. Morgan, Lewis & Bockius LLP One Market, Spear Street Tower San Francisco, CA Tel: Fax: jrosenthal@morganlewis.com kbailey@morganlewis.com Attorneys for Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas, each acting solely in its capacity as trustee for certain residential mortgage-backed securities, other asset-backed securities, collateralized loan obligation and/or collateralized debt obligation trusts related to the Rehabilitation of Segregated Account of Ambac Assurance Corporation, pending in the Circuit Court of Dane County, State of Wisconsin 5