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FAQsView answers to frequently asked questions about ACA Capital by selecting from the links below: What is the level of ACA FG's claims-paying capital?As of September 30, 2007, ACA FG's claims-paying capital was approximately $1.1 billion and its statutory capital $426 million. What is ACA Capital's gross par insured?As of September 30, 2007, the gross par insured of ACA Capital's Public Finance portfolio was $7.0 billion. What public finance sectors has ACA Capital insured?The sectors insured by ACA Capital are as follows: general obligations and tax-backeds, higher education, privatized student housing, charter schools, private secondary schools, long term care acute health care, 501(c)(3), utilities, transportation, human service providers and tribal financings. What are CDOs?Collateralized Debt Obligations (CDOs) are securitized instruments used by capital markets to manage risk. The technology for creating CDOs involves pooling assets and issuing liabilities securitized by the pool of assets. The liabilities issued are tranched into several risk layers with varying levels of risk and return. Investors purchase CDOs according to their credit risk appetite and portfolio requirements, either economic or regulatory. To date, the CDOs developed by ACA Capital have pooled either asset backed securities (ABS) or corporate credit default securities. How does ACA Capital participate in structured finance?ACA Capital participates in the structured finance business through the origination, structuring and management of CDOs, and through its Structured Credit Group. As an issuer of CDOs, based on credit fundamentals and in partnership with investment banks, ACA accumulates a portfolio of investment grade corporate credit default swaps or asset-backed securities (ABS), pools the assets, issues variously rated securities for sale to the capital markets, often retains some portion of the capital structure and manages the portfolio of assets on an ongoing basis. How is ACA Capital compensated for its CDOs?ACA Capital earns risk premium for its investment in the CDO, as well as structuring fees, warehouse income and recurrent asset management fees from its CDOs. What are the mark-to-market liquidity considerations for CDOs?The CDOs managed by ACA Capital do not have mark-to-market provisions. The assets in the CDOs are carried at their par value until such time as writedowns or defaults occur. What is the underwriting and analysis process for CDOs?Before ACA Capital agrees to manage a CDO, a proposed asset portfolio and capital structure is developed, reviewed and approved by ACA Capital's Risk Management Committee. The individual assets that are then pooled in the CDOs are reviewed by a team of credit analysts that presents and recommends specific assets to the appropriate internal collateral committee for approval. What is the business strategy for ACA Capital's CDOs?ACA Capital sponsors and manages CDOs due to the diverse sources of income. ACA Capital often participates in the equity tranche of the CDOs due to the risk/return profile of the equity investment and to increase the marketability of the CDOs and thereby maximizing assets under management. What is ACA Capital's investment and asset management philosophy regarding its CDOs?ACA Capital focuses primarily on the investment grade debt markets and identifies attractive investments through fundamental credit and collateral analysis and risk/return relative value analysis. ACA Capital actively monitors and reviews its portfolio to identify at-risk assets early. ACA Capital's philosophy is to try to preserve capital and appropriately sell or hedge deteriorating investments. In addition, ACA Capital structures its vehicles to minimize interest rate and maturity risk. How many people are dedicated to ACA Capital's CDOs?There are 19 full-time portfolio managers, credit analysts, traders and operations support personnel at ACA Capital. In addition, there are four dedicated systems and quantitative analysts supporting the CDOs. What is a typical structured credit transaction?In a typical structured credit transaction, ACA Capital sells protection on a portfolio of investment grade corporate credit risks, with credit enhancement below ACA Capital's attachment point. For example, if a $1 billion portfolio has 100 equally sized corporate credits of $10 million each, ACA Capital would take the risk that net losses on the underlying corporate credits exceeded $100 million or 10% (giving credit for recovery after each default). 10%, in this example, would typically be well in excess of the level needed for a AAA rating. ACA Capital's protection stays in force until losses exceed a higher threshold than the initial 10%; for example 20%. This is often called a super-AAA tranche - ACA Capital's tranche in the example would be 10-20%. |
