Bond insurer Assured Guaranty Ltd. in Bermuda announced that it has an agreement to purchase another financial guaranty firm, New York-based Financial Security Assurance Inc., for $722 million in cash and stock.

Assured said the sale arrangement, which has backing from the investment firm created by billionaire investor Wilbur L. Ross, is with FSA parent Dexia SA. Assured will purchase Financial Security Assurance Holdings Ltd., the holding company for FSA.

The company said its definitive agreement provides that it will be fully protected against exposure to FSA's troubled Financial Products segment, which includes its guaranteed investment contract business.

Dominic Frederico, Assured president and chief executive officer, called the deal a "fantastic opportunity" that creates significant value for shareholders.

The combination of the two organizations, he said, will create "the premier financial guaranty company with the talent, capacity, financial resources and relationships to serve the demands of our customers."

Robert P. Cochran, chairman and CEO of FSA Holdings and FSA, said: "We believe that this combination is a win-win for the issuers and investors, as well as for the two companies. The whole will be greater than the sum of the parts based on the exceptional talents of our people, the larger scale of operation and greater capital strength achieved.

"While Dexia has been a highly supportive parent over the past eight years, we look forward to working with our new partners at Assured Guaranty to build a bigger and better franchise."

The boards of both Assured Guaranty Ltd. and of Dexia have voted for the transaction, which is also subject to a vote by Assured's shareholders as well as the customary regulatory approvals.

The transaction closing is also contingent on confirmation from Standard & Poor's, Moody's Investors Services and Fitch Ratings that the acquisition of FSA would not have a negative impact on the financial strength ratings of Assured or FSA.

The company said the closing is expected in the first quarter of 2009. Banc of America Securities LLC acted as financial advisor to Assured and Mayer Brown LLP acted as legal counsel to Assured on this transaction.

Assured said the $722 million purchase price consists of $361 million in cash and 44,567,000 common shares of Assured. The amount is approximately 37.5 percent of FSA's Sep. 30 shareholders' equity adjusted for the financial products segment and certain other accounting items.

As part of the transaction, Assured said it will also be assuming $730 million of FSA's outstanding debt and the acquisition is not subject to a financing contingency.

Assured said it expects to finance the cash portion of the acquisition with the proceeds of a public equity offering and it has received a back-up commitment from funds affiliated with WL Ross & Co. LLC, Mr. Ross' New York firm, to fund the cash portion of the purchase price with the purchase of newly issued common shares.

Standard & Poor's analysts reacted by upgrading Assured shares to buy from hold

S&P said because the deal excludes Financial Security's troubled assets and is contingent upon no adverse impact to either company's financial strength ratings, it views it positively and sees Assured shares as undervalued.

Special Reports /

Assured Guaranty To Buy FSA For $722 Million

Related Stories

Recommended For You