Regulators step in at troubled ACA Capital

Bond insurer relinquishes authority to Maryland Insurance Administration; S&P earlier downgraded ACA.

NEW YORK (AP) -- The bond insurance unit of ACA Capital Holdings Inc. has agreed to turn over substantial control to Maryland insurance regulators, the company said in a Securities and Exchange Commission filing late Wednesday.
The agreement with the Maryland Insurance Administration gives regulators the authority to approve or reject any deals made by ACA to pledge assets, pay dividends or engage in "certain material transactions." ACA's bond unit also agreed not to object to any move by regulators to declare it delinquent on its obligations.
ACA has faced doubts over its future since Dec. 19, when Standard & Poor's downgraded ACA Financial Guaranty Corp. to the junk "CCC" rating from an investment-grade "A" rating. Like other bond insurers, ACA has substantial exposure to weakening credit markets, which has led to speculation it could have difficulty meeting its insurance obligations if defaults worsened.
In the SEC filing, ACA said that its insurance contracts typically include provisions that would have required it to post collateral in the event of a rating downgrade -- at least $1.7 billion in collateral based on its Sept. 30 obligations, ACA said. But, the company said it has received a waiver on those additional collateral requirements through Jan. 18.
ACA also said that it entered into the deal with Maryland regulators before the S&P downgrade.