Wednesday, January 23, 2008

ACA gets another month to live

The saga of bond insurer ACA Capital (ACAH.PK) continues. The firm just received new forbearance agreement which gives the company another month to live. ACA wrote insurance on about $69B in corporate and mortgage debt securities, but can only pay claims of $425M. With the subprime meltdown, claims are already well above this level and rising. At this point investment banks may have to write off $10.1B of the $12.7B in bonds that they have insured with ACA.

ACA Capital is just one of the bond insurers in trouble. MBIA (MBI) and Ambac (ABK) face a similar cloud. Both insurers have risen in recent days on the thin hope that either regulators or acquisitions will salvage them. Only time will tell if these scenarios play out. In the mean time, the actual value of insurance on Muni Bonds and many other debt instruments is very much in doubt.

ACA wins more time from trading partners