NEW YORK ( TheStreet) -- Ambac Financial Group ( ABK), the bond insurer whose main subsidiary had most of its liabilities taken over by Wisconsin's insurance regulator, said it has provisional agreements to settle $16.7 billion in debt.Following reports that the regulator, known as the OCI, was looking for settlements of 25 cents on the dollar, the provisional agreements set the mark at 27.5 cents. The settlement will be for $2.6 billion in cash and $2 billion in surplus notes with a 5.1% coupon. Considering that the deals are outside "segregated-account" rehabilitation controlled by the OCI, the likelihood is that the provisional settlements will be completed. The rehabilitation order separated most of the "bad" liabilities of the Ambac Assurance Corp. subsidiary into a kind of a insurance company known as the "segregated account." What's left consists substantially of the collateralized debt obligations subject to the proposed $16.7 billion settlement and the performing municipal-bond business. In addition, all credit default swap contracts, in which the counterparties have agreed to temporary forbearance, have been retained in what is being called the "general account," the remainder of Ambac Assurance, which will continue to be run normally. It's likely that the CDS contracts contained provisions that under normal circumstances would have triggered default clauses. The forbearance agreements have suspended that right. In the event that the voluntary forbearance is withdrawn, the CDSs will be transferred to the segregated account. The same would happen if any of the CDO settlement agreements fail to materialize. Ambac spokesman Peter Poillon wouldn't disclose the notional amount of the CDS contracts involved in the temporary forbearance. All accounts transferred to the segregated account are subject to a court-ordered forbearance, prohibiting demands for payments or settlement. -- Reported by Gavin Magor in Jupiter, Fla.