Fitch Comments On ACA Financial Guaranty Corp

Business Wire, Jan 4, 2001

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 4, 2001

Fitch is closely monitoring ACA Financial Guaranty Corp. (ACA), vis-a-vis its efforts to raise additional capital. Fitch currently rates the insurer financial strength of ACA `A' and will reconsider its rating if one of the following events occur: 1. ACA's statutory surplus falls below $75 million, rendering ACA unable to write new business in the State of California; 2. ACA suffers credit deterioration in its insured portfolio resulting in claims-paying protection inconsistent with its current rating; 3. it becomes evident that the company has no reasonable prospects to receive additional investments.

In March 2000, Fitch had made public its concerns related to ACA's financial position which included the reduction in its statutory surplus to just above the regulatory minimum for the State of California, and the nonrenewal of its $75 million soft capital facility provided by ACE Capital Re Bermuda. In addition, the company was, and currently is, operating at a loss on a statutory accounting basis.

The company was able to apply partial solutions to these concerns. On May 22, 2000, ACA's current investors contributed $15 million of new capital to ACA. Additionally, on June 30, 2000, the company signed a $75 million excess-of-loss reinsurance soft capital facility with ACE American Insurance Co. to replace the $75 million facility from ACE Capital Re Bermuda.

However, the company has not yet succeeded in raising $45 million of additional capital sought from a number of financial and strategic investors. Fitch believes this additional capital is necessary for ACA to operate according to its business plan and maintain compliance with statutory regulations in its target markets.

Currently, a group including existing ACA investors are evaluating an additional investment in the company. Fitch is closely monitoring the progress of this due diligence process which is expected to be completed by the end of January. Fitch will reevaluate its rating, if necessary, based on the results of that investment decision.