First Bond Insurer Close To Insolvent
A: ACA Capital Holdings stock is halted for news pending but it's not going to be good and is going to show why I discuss these topics regarding credit so often here. It is further proof that the credit crunch cycle is expanding bringing stocks and investor confidence down with it. Expect news to get worse before it gets better.
About ACA Capital Holdings (I bolded the parts that should be familiar to you by now) - ACA Capital Holdings, Inc., a holding company, provides financial guaranty insurance products to participants in the global credit derivative, structured finance capital, and municipal finance capital markets. It also provides asset management services to specific segments of the structured finance capital markets. The company selects, structures, and sells credit protection principally on highly rated liabilities of structured financings, including layers of risk of single tranche transactions and fully distributed CDOs, MBS and ABS transactions. It also provides financial guaranty insurance focusing on underserved segments of the public finance market and specific credits.
I talked (click on links for my previous posts) about the bond insurers before here on UrbanDigs, and I discussed the problem with the ratings agencies, how future downgrades will cripple some of these companies ability to raise cash, and how insolvency is a very likely final result.
If ACA loses its credit rating, they will most likely become insolvent. This is big news folks, because there are many other bond insurers (PMI, ABK, MTG, RDN, to name a few) in deep trouble and if these insurers go, then the ratings agencies will get serious heat, and those trying to receive claims will be left with nothing to get; and we know there are tons of brokerages, banks, and other institutions holding billions of dollars of untradable assets whose losses are yet to be revealed. This will have a crippling effect, the severity of which is the only unknown.
You will also start to see heat on the ratings' agencies: MOODY's & FITCH. As the heat is put on, more companies will be put on negative watch and future downgrades of credit ratings are all but guaranteed. Its all part of the vicious credit cycle that will prolong the slumping stock market, lead to higher borrowing costs, contribute to a negative wealth effect, force the fed to cut rates at the expense of future pipeline inflation, and a dip in consumer confidence that may affect any asset class expected to depreciate.
A few general things I want to disclose that keep popping around my head:
Comments (3)
"Where will this blog be in 2 years?"
Still here I hope. Hello Noah, I refer my clients to your blog, I tell them how smart you are. Thanks!
Posted by Maggie Knowles | November 22, 2007 6:02 PM
:) much appreciated Maggie. Thanks!!!!!
Posted by Noah | November 22, 2007 9:47 PM
I keep wondering a lot of the same things. The next shoe to drop has got to be foreign investment. I think the plunging dollar and the continued proliferation of the tentacles of the credit beast are going to start giving foreign investors pause. If you have been reading about China lately, they may be in for their own credit and stock and market problems (companies are investing in each others shares and reaping billions from the stock bubble a'la U.S. 1929 and Japan 1987, while operating profits are plunging due to increased costs). As some of the U.S. problems start to impact foreign markets and companies, many will repatriate funds that were seeking better returns overseas. I don't see foreign buyers being the last support of NYC housing prices, I think they will contribute to the crack in prices that looks to be coming. But as for the blog its onward and upward pard.
Posted by jeff bernstein | November 23, 2007 9:48 AM