Bond insurer Ambac Assurance Corp. has sued the Adelanto Public Utility Authority in California, saying the issuer failed to take steps to prevent a swap it entered from being terminated and has now left the bond insurer liable for the payment.

The authority failed to find a new insurer or obtain its own investment-grade rating after Moody’s Investors Services downgraded Ambac — which insured the swap — to Baa3 last November, giving swap counterparty Piper Jaffray Financial Products Inc. the right to terminate it, the lawsuit says. Adelanto repeatedly rebuffed efforts by Ambac and Piper Jaffray to work out a solution, leading Piper to terminate the swap by notice June 1, according to the suit.

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