Court Approves Ambac Settlement Agreement

Hercules narrowly avoided bankruptcy Tuesday, after the Contra Costa County Superior Court approved an agreement that settled Ambac Assurance Corp.’s $4.05 million lawsuit against the city.

“This is a major bullet that we just dodged,” City Manager Steve Duran said Tuesday. Duran said that if a settlement weren’t reached, the city would have had to file for bankruptcy protection.

Hercules pledged two of its land assets — vacant lots known as Parcel C and Victoria Cresent — and agreed to pay Ambac’s lawyer fees and interest on the $4.05 million as part of the settlement.

Two stipulations were filed Tuesday. One was made public and the court sealed the other. Lawyer costs and the interest rate Hercules is required to pay were in the sealed stipulation at Ambac’s request, City Manager Steve Duran said.

“With some reluctance, it was a (term) we agreed to,” City Attorney Patrick Tang said.

Ambac sued Hercules on Jan. 30, after learning that the city would not be able to make the $2.4 transfer to bond trustee, Bank of New York Mellon Trust Company, for debt interest payments due to bondholders Feb. 1.  Ambac, the bonds insurer, was forced to pay the $2.4 million.

The company sued Hercules for the $4.05 million lump of tax increment the city collected in December and transferred into its pooled cash investment account. Ambac said the tax increment funds were pledged as collateral and security for redevelopment bond obligations.

“This settlement was the best outcome for all parties” Duran said, “as it protects everyone’s interests and keeps the City from having to seek pre-bankruptcy mediation.”