XL Capital Ltd said that, contrary to some reports it is not a party to a lawsuit filed by Merrill Lynch International against bond insurer Security Capital Assurance Ltd's (SCA) subsidiary, XL Capital Assurance Inc. (XLCA).
The company stated that it owns approximately 46 percent of the common equity interest in SCA, but XLCA is not a subsidiary of XL.
XL added that a transition agreement entered into by XL and SCA permits SCA to use the "XL" name until August 2008.
In February, XL Capital announced that it took fourth-quarter charges in the range of $1.5 billion related to credit market exposures – principally coming from its investment in SCA.
SCA said that the lawsuit involves seven credit default swaps, to which Merrill Lynch International was counterparty, that were terminated by XLCA. Merrill Lynch International reportedly filed the lawsuit to require XLCA to "meet its contractual obligations for credit default swaps."
SCA maintained that Merrill Lynch International broke its contractual obligations to XLCA by committing to provide a third party with CDO control rights that it had previously promised to XLCA. SCA said the seven transactions mentioned in the lawsuit were conditional on the CDO control rights.
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