Another coup for a Wilbur Ross investment.
Bond insurer Assured Guaranty Ltd.(AGO) on Friday struck a $722 million deal to acquire rival Financial Securities Assurance Holdings from French-Belgian lender Dexia.
Dexia, which has struggled amid the credit crunch, will receive $361 million and 44.6 million shares in stock, giving the company a 25% stake in Assured Guaranty.
While Assured Guaranty will assume $730 million of FSA debt, the insurer won’t get the toxic assets contained in FSA’s asset-management business. Those will be guaranteed by the French and Belgian governments and wind down.
Assured Guaranty and FSA have remained the only AAA-rated U.S. bond insurers, as others around them have suffered amid the slumping value of structured investments such as collateralized debt obligations.
The purchase is subject, among other things, to the three major U.S. credit raters saying the takeover won’t hurt either company’s financial strength ratings. Moody’s Investors Service and Fitch Ratings have been reviewing FSA for possible downgrade.
Assured Guaranty will sell stock to raise capital for the cash portion of the deal and has a back-up financing commitment from distressed-asset investor WL Ross & Co., which would purchase newly issued shares. The company has about 91 million shares outstanding.
Assured Guaranty has been able to thrive in recent months as rivals suffered amid reduced credit ratings. It has become a big player in municipal-debt insurance, with its market share climbing to 44% of insured activity in the direct new-issue U.S. public finance market last month. That compares with 1.1% a year earlier, according to Thomson Reuters.
When this mess is all over, one can make the argument that Berkshire Hathaway (BRK.A) and Ross’s Assured will be the sole AAA rated bond insurers out there. Without competition from the Ambacs (ABK) and MBIA’a (MBI) of the world, the price they will receive for their services will rise as they pick and choose the deal they want and get the terms they want.
Bond insurance will again be a god business…for smart people..
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books