Davis Polk advised 14 financial institution counterparties holding credit default swap and financial guarantee exposure to monoline insurer Ambac Assurance Corporation ("AAC") in connection with a series of commutation transactions pursuant to which AAC commuted $16.4 billion of exposure to collateralized debt obligations of asset-backed securities ("CDOs of ABS").

Pursuant to the commutation agreements with the CDO of ABS counterparties, AAC paid in the aggregate (i) $2.6 billion in cash and (ii) $2 billion of newly issued surplus notes of AAC. The surplus notes have a scheduled maturity of June 7, 2020. Interest on the surplus notes is payable at the annual rate of 5.1%. All payments of principal and interest on the surplus notes are subject to the prior approval of the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI").

Additionally, (i) certain non-CDO of ABS transactions with par or notional amounting to approximately $1.4 billion were commuted for cash payments of $96.5 million and (ii) further agreements were put in place pursuant to which it is expected that, subject to certain conditions, certain other non-CDO of ABS exposures with par amounting to a maximum of approximately $1.5 billion will be commuted within the next 12 months for a maximum amount of approximately $115 million of cash plus $60 million of surplus notes of AAC.

The Davis Polk corporate and restructuring team included partners Donald S. Bernstein and Joseph P. Hadley and associates Lynn Poss, Hilary Dengel and Darren Mahone. Partner Ethan T. James and associate Aaron Page provided insurance regulatory advice. Partner Kathleen L. Ferrell and associate Joshua Ruland provided tax advice. The litigation team included partner Michael P. Carroll and associates James W. Haldin, Paul S. Mishkin, and Sagar K. Ravi. All members of the Davis Polk team are based in the New York office.