Fitch Assigns `AA' To Financial Security Assurance Holdings Debt

Business Wire, Dec 12, 2001

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 12, 2001

Fitch assigns its `AA' rating to Financial Security Assurance Holdings Ltd. (FSA Holdings) $100 million 100-year bonds. The debt will bear interest at the rate of 6.875% per year and is callable on or after five years. FSA Holdings is a wholly owned subsidiary of Dexia S.A. (Dexia), a large Franco-Belgian banking group. FSA Holdings' principal operating subsidiary, Financial Security Assurance Inc. (FSA) is a monoline financial guarantor whose insurer financial strength Fitch rates `AAA'.

FSA Holdings' debt rating is based on stable revenue flows and strong coverage levels. FSA Holdings had a $2.5 billion investment portfolio, $1.6 billion of stockholders' equity, $646 million of unearned premium reserves, and $475 million present value of future installment premiums at Sept. 30, 2001. These resources produce stable and predictable revenue flows. FSA Holdings' net income for the first nine months of 2001 was $152 million. Factoring in the new debt results in a long-term debt-to-capital ratio of 17.0%. Long-term debt-to-capital ratios of 15%-20% are considered moderate for the holding company of an `AAA'-rated financial guarantor.

FSA is domiciled in New York, where it can pay annual dividends to FSA Holdings up to the lesser of: 10% of policyholders' surplus or 100% of the past 12 months' adjusted net investment income without prior approval from the state insurance commissioner. On a pro forma basis, FSA can dividend approximately $81.6 million in 2002 without prior approval from the insurance commissioner. Including the new debt, annual interest costs on FSA Holdings' outstanding debt is approximately $23.5 million. Therefore, permitted dividends provide 3.5 times (x) interest coverage. In addition, FSA Holdings has pro forma cash and marketable securities of $60 million available at the holding company level, which can be used to pay debt service. In conjunction with the Dexia merger, FSA agreed to obtain permission from the New York State Insurance Department for any payment of dividends to FSA Holdings for a two-year period ending July 5, 2002. Given the resources already available at FSA Holdings, this restriction does not materially affect FSA Holdings' ability to service its debt.

FSA's `AAA' insurer financial strength rating reflects the company's highly experienced management team, conservative underwriting standards, strong capital adequacy, and high-quality investment portfolio. FSA is a leading provider of financial guaranties in domestic and international municipal bonds, asset- and mortgage-backed securities (ABS/MBS), and collateralized debt obligations (CDOs). FSA had insured net par in-force of $188.6 billion at Sept. 30, 2001, supported by claims-paying resources of $3.0 billion, $1.5 billion of which was qualified statutory capital. FSA's net par outstanding to total claims-paying resources ratio was 62.1:1 at Sept. 30, 2001.