ACA Financial Guaranty Corp., a unit of Maryland-registered ACA Capital, will seek approval from the Maryland Insurance Administration before pledging or assigning assets, paying dividends or entering into “certain material transactions,” the company said in a filing with the Securities & Exchange Commission yesterday. In response, the Maryland Insurance Administration says it will hold off proceedings against the company.
The move gives the bond insurer “breathing room and a month to stave off bankruptcy,” said Nigel Sillis, director of fixed income and currency research at Baring Asset Management in London, although he notes bankruptcy still appears “inevitable.”
Currently, credit-rating companies are taking a hard look at MBIA Inc., Ambac Financial Group Inc. and other bond insurers, worried that the companies may not have sufficient money to cover potential losses arising from accelerating downgrades of the securities they guarantee, potentially endangering $2.4 trillion of bonds. Just last week, S&P slashed ACA’s rating by 12 levels to “CCC” after the company posted a $1.04 billion third-quarter loss in November.
ACA said after the downgrade it had reached agreements that prevent the company having to immediately post collateral to back credit derivative agreements. The parties on the other side of the transaction table agreed to waive the collateral requirements until mid-next month, giving the company some time to raise money and solve its financial problems.