Since when has Blackstone been advising ACA?
Well they are now. The troubled monoline bond insurer on Tuesday night said it had entered into a third forbearance agreement with its counterparties to give it more time to raise capital and restructure before it has to post collateral on its CDS positions.
It’s the third such waiver that the insurer has secured – and this stay of execution is that much longer, running to 6pm on April 23. But look at the small print here:
During this period, the Company plans to work with its financial advisor, The Blackstone Group, to further build upon the significant progress achieved since early December 2007. The Company seeks to finalize the terms of a solution by the end of this extended forbearance period and to proceed to closing as soon as practicable thereafter.
Blackstone’s name wasn’t in evidence in the last such announcement, on January 20. Or the original one back in December.
But the private equity group, of course, already has some hands-on experience with the plight of the monolines. It is the part-owner, with Cypress Group, CIVC Partners and PMI Group, of FGIC – the bond insurer that has already asked regulators to approve a plan to split the company in two.
FGIC was in one sense being seen as a potential test-case for a split along “good bank/bad bank” lines – or municipal versus structured credit – made easier by the fact that the business is privately held. So Blackstone’s preference for the monolines is already on the table – it hasn’t for example stepped up to inject further capital into FGIC.
The monolines appear to be edging ever closer to oblivion. Even if no one’s quite sure what oblivion might look like. MBIA’s decision to bring back its former chief executive Jay Brown is a change that will facilitate a “good bank/bad bank” restructuring. Ambac is also seeking to raise capital as a prelude to a split.
Can we add ACA to the list? Perhaps not. ACA was always a breed somewhat apart from the largest bond insurers, MBIA and Ambac. For a start since it started out with just a single-A rating – before being slashed to CCC - it had collateral posting written into its positions, hence its current difficulties. But that meant it was a less attractive prospect for the municipal issuers seeking a top notch rating in any case.
So the public finance portion of ACA’s (already much smaller) business is less significant – according to its website, last September, ACA had $7bn of gross par exposure in its public finance business against $69.1bn of notional exposure in its structured credit lines. So ACA is more bad bank, than good bank. Other monolines’ municipals operations are much larger overall than their lately forays into the world of structured credit.
So the main people in hock to ACA are the investment banks – not least Merrill Lynch. Moody’s has just estimated that monolines troubles could cost the banks $20bn to $30bn in increased reserves for counterparty risks.