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Tuesday, November 20, 2007

 

ACA capital on the ropes


via calculated risk and maxed out mama -- credit default insurer ACA capital, which is a sort of poor man's monoline, is facing default on a potential ratings downgrade. the consequence? per barron's:

ACA has long been a convenient dumping ground in which major subprime securitizers like Bear Stearns (BSC), Citigroup (C), Merrill Lynch (MER) and some 25 other prominent dealers could pitch billions of dollars of risky obligations for modest premiums. That let them gussy up their balance sheets and shift any potential mark-to-market hits to ACA.

If ACA Capital were to founder, more than $69 billion worth of CDOs, including the $25 billion in subprime paper, would come rumbling back to the Wall Street banks, and likely with heavy attendant losses.

That's why Wall Street has continued to do a brisk business with the beleaguered firm. In the third quarter, ACA insured some $7 billion of subprime collateralized-debt obligations. Even if the company survives for only another couple of quarters, that would stave off the recognition of billions of dollars of losses.


more on the knock-on effects...

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