Risk Management

Maryland Takes Control of Corporate Unit

The parent of ACA Financial Guaranty hands control of its bond insurance unit to state regulators.
Stephen TaubDecember 27, 2007

ACA Capital Holdings said that Maryland insurance regulators will oversee the activities of its bond insurance unit. In a regulatory filing, the specialty finance company said that its subsidiary, ACA Financial Guaranty, agreed not to engage in “certain material transactions” without providing prior notice to the Maryland Insurance Administration (MIA). Those activities include pledging or assigning assets, paying dividends, or engaging in certain material transactions.

ACA FG’s future prospects became precarious on December 19 when Standard & Poor’s downgraded its financial strength rating to ‘CCC’ (developing outlook) from ‘A’ (CreditWatch negative). That same day, ACA Capital and its direct and indirect subsidiaries entered into a agreement with its structured credit and other counterparties to have waived all collateral posting requirements and termination rights.

The company noted that as of September 30, its total structured credit notional portfolio was $69.1 billion. If the credit agreements were not in place, the portfolio balance would have triggered credit covenant defaults, requiring the company to post collateral of at least $1.7 billion to guard against a negative corporate credit event. The short-term waivers are in effect through January 18.

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