Standard & Poor’s said it has no immediate plans to change ACA Financial Guaranty Corp.’s credit rating.
“The company is starting to make money and perform the way a financial guarantor is supposed to be performing,” said Howard Mischel, S&P’s director of global bond insurance.
ACA, which tripled its net income in 2003, is currently in registration for an initial public offering (IPO). It is looking to raise additional capital for its rapid expansion in the Collateralized Debt Obligation (CDO) sector, which is unrelated to its activities as a municipal bond insurer.
American Capital Access Holdings, the parent company of ACA, reported 2003 full year net income of $17.2 million, a significant increase over 2002’s net income of $4.6 million.
ACA, in response to Fitch Ratings’ earlier downgrade of ACA to BBB from A, said it has formally requested that Fitch withdraw its rating completely. ACA said the Fitch downgrade, which came just six days after it placed the company on credit watch, was unwarranted since there had been no investigation and no negative developments impacting the company.
The Fitch action stems from a recent management shakeup at ACA. Earlier this month, Michael Satz, the company’s CEO, announced he would resign shortly, due to personal reasons. A week earlier, Maryam Muessel, who headed ACA’s profitable CDO business, left the company due to a dispute over her contract and her future role with the company.
S&P, however, has taken a more measured approach to these developments.
“One of things we’re looking at is, who will replace Satz? What will be the caliber of the resulting management team? Any rating action before this would be premature,” Mischel said. “There’s no financial crisis. The company is starting to make money and perform the way a financial guarantor is supposed to be performing.”
“We are going to have a series of meetings with all key personnel in the company, including board members, etc., and try to satisfy ourselves that the changes they’re proposing for senior management will be in concert with where the rating currently is,” Mischel added.
“The IPO is not the only avenue they can pursue. We know there’s more than one way to get this done. And logically, they would be looking at alternatives now, given that the IPO process may have been slowed down,” he said.
Although these types of situations are always disquieting, we at FMSbonds are confident that ACA will be successful in raising the necessary capital to retain its current A rating. Again, these issues are not related to any municipal credits insured by ACA. We will keep you updated on any future developments.