ACA Receives Capital Infusion

Klotz on Bonds

Home > News and Perspectives > ACA Receives Capital Infusion

<h3>James A. Klotz</h3>

James A. Klotz

A $45 million capital infusion from new and existing investors will allow ACA Financial Guaranty Corporation to avoid potential downgrades from Standard & Poor’s and Fitch. The new capital is expected to be in place sometime this month.

“The infusion of new capital is a confirmation of the fundamental viability of the franchise,” said Michael Satz, president & CFO of ACA. “The ACA of today is now a strong platform for future growth. Disciplined underwriting, already a hallmark of the company, and an increased emphasis on capital management should assure that there will be no requirement for additional equity capital for the next several years.”

As visitors to this website know, ACA insured bonds have been trading at depressed levels since S&P placed the “A” rated insurer on Credit Watch, in early January.

Since that time, we have suggested that investors take advantage of the lower prices on ACA bonds possessing strong underlying credits. Our research department identified a number of such issues.

The response to our recommendation was overwhelming. A significant number of current and new clients of purchased ACA insured bonds at bargain prices.

Although we have always maintained that tax-free bonds should be purchased on a “buy and hold” basis, it is gratifying to know that ACA bonds, in the secondary market, are now trading at considerably higher levels (3 to 4 points) since the ACA announcement. We are pleased that our investors could benefit from this situation

James A. Klotz is the President of FMSbonds, Inc.
Email the Author

Mar 19, 2001

Please note that all investing entails risk. Fixed income securities are subject to risks that will affect their value prior to maturity. Some of these risks can be related to changes in market conditions, issuer creditworthiness, and interest rates. This commentary is not a recommendation to buy or sell a specific security. All references to tax-free income refer to U.S. federal income tax. Income earned by certain investors may be subject to the Alternative Minimum Tax (AMT), and or taxation by state and local authorities. Please consult with your tax professional prior to investing. For more information on these topics please click on the “Bond Basics” link below or search by keyword at the top of this page.