SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12644
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3261323
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
350 PARK AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(212) 826-0100
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
At April 30, 2000, there were outstanding 33,517,995 shares of Common Stock, par
value $0.01 per share, of the registrant (includes 505,110 shares of Common
Stock owned by a trust on behalf of the Company and excludes 158,306 shares of
Common Stock actually held in treasury).
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income -
Three months ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 2000 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
---- ----
Bonds at market value (amortized cost of $1,817,574 and
$1,919,677) $ 1,812,879 $ 1,852,669
Equity investments at market value (cost of $23,354 and
$30,104) 18,924 23,606
Short-term investments 155,825 263,747
----------- -----------
Total investments 1,987,628 2,140,022
Cash 6,280 6,284
Deferred acquisition costs 197,604 198,048
Prepaid reinsurance premiums 294,812 285,105
Reinsurance recoverable on unpaid losses 9,710 9,492
Receivable for securities sold 72,411 40,635
Investment in unconsolidated affiliates 30,382 29,709
Other assets 193,251 196,349
----------- -----------
TOTAL ASSETS $ 2,792,078 $ 2,905,644
=========== ===========
LIABILITIES AND MINORITY INTEREST, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 842,684 $ 844,146
Losses and loss adjustment expenses 89,504 87,309
Deferred federal income taxes 50,718 43,341
Ceded reinsurance balances payable 35,583 36,387
Payable for securities purchased 83,494 243,519
Notes payable 230,000 230,000
Minority interest 33,914 32,945
Accrued expenses and other liabilities 146,445 135,313
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 1,512,342 1,652,960
----------- -----------
Redeemable preferred stock (20,000,000 shares authorized;
2,000,000 issued and outstanding; par value of $.01 per share) 20 20
Additional paid-in capital - preferred 680 680
----------- -----------
REDEEMABLE PREFERRED STOCK 700 700
----------- -----------
Common stock (200,000,000 shares authorized; 33,676,301
issued; par value of $.01 per share) 337 337
Additional paid-in capital - common 843,377 836,853
Accumulated other comprehensive loss (net of deferred
income tax benefit of $3,194 and $25,727) (5,932) (47,779)
Accumulated earnings 419,686 436,417
Deferred equity compensation 40,670 52,670
Less treasury stock at cost (669,337 and 961,418 shares held) (19,102) (26,514)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,279,036 1,251,984
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST,
REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY $ 2,792,078 $ 2,905,644
=========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
March 31,
--------------------------
2000 1999
Revenues:
Net premiums written (net of premiums ceded of $29,931 and
$28,424) $ 36,936 $ 49,910
Decrease (increase) in deferred premium revenue 10,648 (8,616)
-------- --------
Premiums earned (net of premiums ceded of $19,896 and
$15,441) 47,584 41,294
Net investment income 28,433 22,024
Net realized gains (losses) (28,835) 824
Other income 269 58
-------- --------
TOTAL REVENUES 47,451 64,200
-------- --------
Expenses:
Losses and loss adjustment expenses (net of reinsurance
recoveries of $55 and $194) 1,781 2,175
Interest expense 4,154 4,154
Policy acquisition costs 9,681 9,917
Other operating expenses 59,830 4,520
-------- --------
TOTAL EXPENSES 75,446 20,766
-------- --------
Minority interest and equity earnings (296) (585)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (28,291) 42,849
Benefit (provision) for income taxes 15,509 (10,692)
-------- --------
NET INCOME (LOSS) (12,782) 32,157
-------- --------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period 22,683 (13,086)
Less: reclassification adjustment for gains (losses)
included in net income (19,164) 536
-------- --------
Other comprehensive income (loss) 41,847 (13,622)
-------- --------
COMPREHENSIVE INCOME $ 29,065 $ 18,535
======== ========
As based upon net income:
Basic earnings (loss) per common share $ (0.38) $ 1.05
======== ========
Diluted earnings (loss) per common share $ (0.38) $ 1.01
======== ========
See notes to condensed consolidated financial statements.
4
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Additional Accumulated Deferred
Paid-In Other Comp- Equity
Common Capital - rehensive Accumulated Compen- Treasury
Stock Common Income Earnings sation Stock Total
----- ------ ------ -------- ------ ----- -----
BALANCE, December 31, 1999 $337 $836,853 $(47,779) $436,417 $52,670 $(26,514) $1,251,984
Net loss (12,782) (12,782)
Net unrealized gain on investments 41,847 41,847
Dividends paid on common stock
($0.12 per share) (3,949) (3,949)
Deferred equity compensation 6,811 6,811
Deferred equity payout 6,524 (18,811) 7,564 (4,723)
Purchase of 2,989 shares of common
stock (152) (152)
BALANCE, March 31, 2000 $337 $843,377 $ (5,932) $419,686 $40,670 $(19,102) $1,279,036
==== ======== ======== ======== ======= ========= ==========
See notes to condensed consolidated financial statements.
5
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
Cash flows from operating activities:
Premiums received, net $ 28,377 $ 43,967
Policy acquisition and other operating
expenses paid, net (71,729) (50,390)
Loss and LAE recovered (paid), net 679 (723)
Net investment income received 28,955 18,955
Recoverable advances paid (709) (1,265)
Federal income taxes paid (12,452) (1,889)
Interest paid (4,134) (3,903)
Other, net (848) 707
--------- ---------
Net cash provided by (used for)
operating activities (31,861) 5,459
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 735,196 450,625
Purchases of bonds (847,255) (422,458)
Purchases of property and equipment (2,321) (176)
Net decrease (increase) in short-term
securities 109,460 (41,255)
Other investments, net 1,785 4,281
--------- ---------
Net cash used for investing activities (3,135) (8,983)
--------- ---------
Cash flows from financing activities:
Dividends paid (3,949) (3,403)
Treasury stock 13,936 13,974
Other 25,005 (49)
--------- ---------
Net cash provided by financing activities 34,992 10,522
--------- ---------
Net increase (decrease) in cash (4) 6,998
Cash at beginning of period 6,284 3,490
--------- ---------
Cash at end of period $ 6,280 $ 10,488
========= =========
See notes to condensed financial statements.
6
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company domiciled in the State of New York. The Company is primarily
engaged (through its insurance company subsidiaries, collectively known as
FSA) in the business of providing financial guaranty insurance on
asset-backed and municipal obligations. At March 31, 2000, the Company was
owned 21.0% by White Mountains Insurance Group, Ltd. (White Mountains), 8.0%
by The Tokio Marine and Fire Insurance Co., Ltd. (Tokio Marine), 7.7% by XL
Capital Ltd (XL), 5.2% by MediaOne Capital Corporation (MediaOne) and 58.1%
by the public and employees. These percentages are calculated based upon
outstanding shares, which are reduced by treasury shares as presented in
these financial statements.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q and, accordingly, do not include
all of the information and disclosures required by accounting principles
generally accepted in the United States. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 Annual Report to Shareholders. The
accompanying financial statements have not been audited by independent
accountants in accordance with auditing standards generally accepted in the
United States but, in the opinion of management, all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows at March 31, 2000
and for all periods presented have been made. The December 31, 1999 condensed
balance sheet data was derived from audited financial statements, but does
not include all disclosures required by accounting principles generally
accepted in the United States. The results of operations for the periods
ended March 31, 2000 and 1999 are not necessarily indicative of the operating
results for the full year.
3. WEIGHTED AVERAGE COMMON SHARES INFORMATION
Weighted average common shares for the periods presented have been
computed below in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share."
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
(shares in thousands)
Weighted average common shares outstanding used in
the computation of net income per share:
Common shares outstanding 32,899 30,113
Shares unissued under employee equity
compensation plans 523 400
------ ------
Basic common shares outstanding 33,422 30,513
Shares contingently issuable under employee
equity compensation plans -- 404
Stock options -- 24
Convertible preferred stock -- 849
------ ------
Diluted common shares outstanding * 33,422 31,790
* The diluted net loss per is based on 33,422,000 common shares outstanding due
to the anti-dilution provisions of SFAS No. 128.
7
4. MERGER
On March 14, 2000, the Company announced that it had entered into a merger
agreement pursuant to which the Company would become a wholly owned subsidiary
of Dexia S.A., a publicly held Belgian corporation, subject to receipt of
shareholder and regulatory approvals and satisfaction of other closing
conditions. Pursuant to the merger, each outstanding share of the Company's
common stock (unless directly or indirectly owned by Dexia S.A. and except for
treasury shares) will be converted into the right to receive $76.00 in cash.
Dexia S.A., through its bank subsidiaries, is primarily engaged in the business
of public finance in France, Belgium and other European countries.
In conjunction with this transaction, the Company anticipates, at closing,
valuing its liabilities under the Company's equity-based compensation plans at
the transaction price and changing its assumption regarding those plans by
assuming all future payments will be settled in cash or, as the case may be,
exchanged at the cash value for alternative investments and settled upon
expiration of any applicable deferral period. It also intends to settle its
Forward Share agreements at the merger price.
While the effect on the Company's consolidated operating results and
financial position between March 31, 2000 and the closing date (assuming the
transaction closes) cannot be accurately predicted, had the above transaction
been effective at March 31, 2000, the pro forma effect would have been to
decrease reported first quarter 2000 net income by $27,400,000 and increase
March 31, 2000 stockholders' equity by $8,400,000.
There can be no assurance that this transaction will close or that it will
close without modification.
8
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
2000 AND 1999 FIRST QUARTER RESULTS
The Company's 2000 first quarter net loss was $12.8 million, compared with net
income of $32.2 million for the same period in 1999, a decrease of 139.8%. Core
net income (operating net income less the after-tax effect of refundings and
prepayments) was $41.7 million, compared with $30.7 million for the same period
in 1999, an increase of 35.8%. Total core revenues in the first quarter of 2000
increased $14.7 million, from $58.5 million in 1999 to $73.2 million in 2000,
while total core expenses increased only $1.2 million. Operating net income (net
income less the after-tax effect of net realized capital gains or losses and the
cost of the equity based compensation programs and other non-operating items)
was $43.2 million for the first quarter of 2000 versus $33.1 million for the
comparable period in 1999, an increase of $10.1 million or 30.7%.
There are two measures of gross premiums originated for a given period. Gross
premiums written captures premiums collected in the period, whether collected
up-front for business originated in the period, or in installments for business
originated in prior periods. An alternative measure, the gross present value of
premiums written (gross PV premiums written) reflects future installment
premiums discounted to a present value, as well as up-front premiums, but only
for business originated in the period. The Company considers gross PV premiums
written to be the better indicator of a given period's origination activity
because a substantial part of the Company's premiums are collected in
installments, a practice typical of the asset-backed business. The discount rate
used to calculate the gross PV premiums written is 5.77% for 2000 and was 5.93%
for 1999. The discount rates represent the average pre-tax yield on the
Company's investment portfolio for the previous three years. Regardless of the
measure used, quarter to quarter comparisons are of limited significance because
originations fluctuate from quarter to quarter but historically have not
exhibited a seasonal pattern.
Gross premiums written decreased 14.6%, from $78.3 million for the first quarter
of 1999 to $66.9 million for the first quarter of 2000. Gross PV premiums
written decreased 48.9%, from $122.1 million in the first quarter of 1999 to
$62.3 million in the first quarter of 2000. The major factor behind the decline
in first quarter business was lower overall new-issue volume in certain markets
served by the Company, as a result of higher interest rates, market volatility
and Y2K-related acceleration of business into the fourth quarter of 1999, which
reduced the pipeline in the first quarter of 2000. In the first quarter of 2000,
U.S. asset-backed gross PV premiums written were $26.8 million, as compared with
$37.7 million in 1999, a decrease of 28.9%, U.S. municipal gross PV premiums
written were $20.8 million, as compared with $43.7 million in 1999, a decrease
of 52.4%, and international gross PV premiums were $14.7 million as compared
with $40.7 million in 1999, a decrease of 63.9%.
In the first quarter of 2000, the Company insured par value of bonds totaling
$7.8 billion compared with $12.9 billion in 1999, a decrease of 39.2%. FSA's
first quarter U.S. asset-backed component fell 35.4% to $3.6 billion, while its
U.S. municipal sector decreased 31.5% to $3.8 billion and the international
sector fell 77.1% to $0.4 billion. Net premiums written were $36.9 million for
the first quarter of 2000, a decrease of 26.0% when compared with 1999. Net
premiums earned for the first quarter of 2000 were $47.6 million, compared with
$41.3 million in the first quarter of 1999, an increase of 15.2%. Premiums
earned from refundings and prepayments were $3.1 million for the first quarter
of 2000 and $4.9 million for the same period of 1999, contributing $1.5 million
and $2.3 million, respectively, to after-tax earnings. Net premiums earned for
the quarter grew 22.3% relative to the same period in 1999 when the effects of
refundings and prepayments are eliminated.
Net investment income was $28.4 million for the first quarter of 2000 and $22.0
million for the comparable period in 1999, an increase of 29.1%. The Company's
effective tax rate on investment income was 15.4% for the first quarter of 1999
compared with 13.5% for the same period in 2000. In the first quarter of 2000,
the Company realized $28.8 million in net capital losses as compared with net
capital gains of $0.8 million for the same period in 1999. Capital gains and
losses are a by-product of the normal investment management process and will
vary substantially from period to period.
9
The provision for losses and loss adjustment expenses during the first quarter
of 2000 was $1.8 million compared with $2.2 million in 1999, representing
additions to the Company's general loss reserve. The additions to the general
loss reserve represent management's estimate of the amount required to
adequately cover the net cost of claims. The Company will, on an ongoing basis,
monitor these reserves and may periodically adjust such reserves based on the
Company's actual loss experience, its future mix of business, and future
economic conditions. At March 31, 2000, the unallocated balance in the Company's
general loss reserve was $56.6 million.
Total policy acquisition and other operating expenses (excluding the cost of
equity-based compensation programs, which was $56.3 million for the first
quarter of 2000 and $2.1 million for the same period in 1999) were $13.1 million
for the first quarter of 2000 compared with $12.4 million for the same period in
1999, an increase of 5.4%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $12.3 million for the first
quarter of 2000 compared with $11.1 million for the same period in 1999, an
increase of 10.6%. The increase was the result of higher personnel costs. The
increase in equity based compensation is due to the rise in market value of the
Company's common stock due to the previously announced merger agreement with
Dexia S.A.
Loss before income tax benefit for the first quarter of 2000 was $28.3 million
compared with income before income taxes of $42.8 million for the same period in
1999.
The weighted average number of diluted shares of common stock outstanding
increased from 31,790,000 for the quarter ended March 31, 1999, to 33,422,000
during the first quarter of 2000. This increase was primarily due to 2.6 million
shares the Company issued in the fourth quarter of 1999. Diluted earnings per
share decreased from $1.01 for the first quarter of 1999 to a loss of $0.38 for
the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated invested assets at March 31, 2000, net of unsettled
security transactions, were $1,976.5 million, compared with the December 31,
1999 balance of $1,937.1 million. These balances include the change in the
market value of the investment portfolio, which had an unrealized loss position
of $9.1 million at March 31, 2000, compared with an unrealized loss position of
$73.5 million at December 31, 1999. At March 31, 2000, the Company had, at the
holding company level, an investment portfolio of $18.5 million available to
fund the liquidity needs of its activities outside of its insurance operations.
Because the majority of the Company's operations are conducted through FSA, the
long-term ability of the Company to service its debt and to declare and pay
dividends will largely depend upon its receipt of dividends from, or payment on
surplus notes by, FSA and upon external financings.
FSA's ability to pay dividends is dependent upon FSA's financial condition,
results of operations, cash requirements, rating agency approval and other
related factors, and is also subject to restrictions contained in the insurance
laws and related regulations of New York and other states. Under New York
insurance law, FSA may pay dividends out of earned surplus, provided that,
together with all dividends declared or distributed by FSA during the preceding
12 months, the dividends do not exceed the lesser of (i) 10% of policyholders'
surplus as of its last statement filed with the New York Superintendent of
Insurance or (ii) adjusted net investment income during this period. FSA paid no
dividends in 1999. Based upon FSA's statutory statements for the quarter ended
March 31, 2000, and considering dividends that can be paid by its subsidiary,
the maximum amount available for payment of dividends by FSA without regulatory
approval over the following 12 months is approximately $81.2 million. In
addition, the Company holds $120.0 million of surplus notes of FSA. Payments of
principal or interest on such notes may be made with the approval of the New
York Insurance Department.
Dividends paid by the Company to its shareholders in the first quarter increased
to $3.9 million in 2000 from $3.4 million in 1999 and to $0.1200 per common
share in 2000 from $0.1125 in 1999. In addition to paying dividends, the Company
uses funds to make debt service payments.
The Company has outstanding $100.0 million of 6.950% Senior Quarterly Income
Debt Securities due November 1, 2098 and callable on or after November 1, 2003
and $130.0 million of 7.375% Senior Quarterly Income Debt Securities due
September 30, 2097 and callable on or after September 18, 2002.
10
In 1996, the Company entered into forward agreements with two financial
institutions (the Counterparties) in respect of 1,750,000 shares (the Forward
Shares) of the Company's common stock. Under the forward agreements, the Company
has the obligation either (i) to purchase the Forward Shares from the
Counterparties for a price equal to $26.50 per share plus carrying costs or (ii)
to direct the Counterparties to sell the Forward Shares, with the Company
receiving any excess or making up any shortfall between the sale proceeds and
$26.50 per share plus carrying costs (net of dividends) in cash or additional
shares, at its option. The Company made the economic benefit and risk of 750,000
of these shares available for subscription by certain of the Company's employees
and directors. When an individual participant exercises Forward Shares under the
subscription program, the Company settles with the participant but does not
necessarily close out the corresponding Forward Share position with the
Counterparties. At March 31, 2000, 562,200 Forward Shares remained in the
program. Of these, 33,078 shares were held for the benefit of the Company as a
result of the repurchase of Forward Shares from employees and directors, and
529,122 shares continued to be held for the benefit of employees and directors.
In the fourth quarter of 1999, the Company entered into additional forward
agreements with two counterparties to purchase 750,000 Forward Shares at an
initial cost of $53.50 per share. These agreements are similar to the Forward
Share agreements described above, and the economic benefit and risk of these
shares are for the account of the Company's employees and directors as described
above. At March 31, 2000, all 750,000 shares were outstanding. In total, for
both plans, net income will be affected by approximately $0.8 million, or $0.03
per share, for each dollar change in the Company's share price.
FSA's primary uses of funds are to pay operating expenses and to pay dividends
to, or repay surplus notes held by, its parent. FSA's funds are also required to
satisfy claims, if any, under insurance policies in the event of default by an
issuer of an insured obligation and the unavailability or exhaustion of other
payment sources in the transaction, such as the cash flow or collateral
underlying the obligations. FSA seeks to structure asset-backed transactions to
address liquidity risks by matching insured payments with available cash flow or
other payment sources. The insurance policies issued by FSA provide, in general,
that payments of principal, interest and other amounts insured by FSA may not be
accelerated by the holder of the obligation but are paid by FSA in accordance
with the obligation's original payment schedule or, at FSA's option, on an
accelerated basis. These policy provisions prohibiting acceleration of certain
claims are mandatory under Article 69 of the New York Insurance Law and serve to
reduce FSA's liquidity requirements.
The Company believes that FSA's expected operating liquidity needs, both on a
short- and long-term basis, can be funded from its operating cash flow. In
addition, FSA has a number of sources of liquidity that are available to pay
claims on a short- and long-term basis: cash flow from written premiums, FSA's
investment portfolio and earnings thereon, reinsurance arrangements with
third-party reinsurers, liquidity lines of credit with banks, and capital market
transactions.
FSA has a credit arrangement, aggregating $150.0 million at March 31, 2000, that
is provided by commercial banks and intended for general application to
transactions insured by FSA and its insurance company subsidiaries. At March 31,
2000, there were no borrowings under this arrangement, which expires on April
27, 2001, unless extended. In addition, there are credit arrangements assigned
to specific insured transactions. In August 1994, FSA entered into a facility
agreement with Canadian Global Funding Corporation and Hambros Bank Limited.
Under the agreement, FSA can arrange financing for transactions subject to
certain conditions. The amount of this facility was $186.9 million, of which
$99.4 million was unutilized at March 31, 2000.
FSA has a standby line of credit in the amount of $240.0 million with a group of
international banks to provide loans to FSA after it has incurred, during the
term of the facility, cumulative municipal losses (net of any recoveries) in
excess of the greater of $240.0 million or 5.75% of average annual debt service
of the covered portfolio. The obligation to repay loans made under this
agreement is a limited recourse obligation payable solely from, and
collateralized by, a pledge of recoveries realized on defaulted insured
obligations in the covered portfolio, including certain installment premiums and
other collateral. This commitment has a term that began on April 30, 1999 and
will expire on April 30, 2007 and contains an annual renewal provision subject
to approval by the banks. No amounts have been utilized under this commitment as
of March 31, 2000.
The Company has no plans for material capital expenditures within the next
twelve months.
11
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements regarding, among other
things, the Company's plans and prospects. Important factors, including general
market conditions and the competitive environment, could cause actual results to
differ materially from those described in such forward-looking statements.
Certain of these factors are described in more detail under the heading
"Forward-Looking Statements" in Item 1 of the Company's Annual Report on Form
10-K, for the year ended December 31, 1999. Forward-looking statements in this
report are expressly qualified by all such factors. The Company undertakes no
obligation to revise or update any forward-looking statements to reflect changes
in events or expectations or otherwise.
12
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc.
and Financial Security Assurance Holdings Ltd. (filed as
Exhibit 2.1 to Current Report on Form 8-K (Commission File No.
1-12644) dated March 14, 2000, and incorporated herein by
reference).
10.2++ Severance Policy for Senior Management (as Amended and
Restated Effective March 13, 2000).
27 Financial data schedules.
99 Financial statements of Financial Security Assurance Inc. for
the quarterly period ended March 31, 2000.
++ Management contract or compensatory plan or arrangement required to
be filed.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated March 14, 2000,
with the Securities and Exchange Commission, with respect to the
Company's announcement that it had entered into an Agreement and
Plan of Merger dated as of March 14, 2000, by and among Dexia S.A.,
PAJY Inc. and the Company, pursuant to which the Company will become
a wholly owned subsidiary of Dexia S.A. through the merger of PAJY
Inc. with and into the Company.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By /s/ Jeffrey S. Joseph
------------------------------------------------
May 12, 2000 Jeffrey S. Joseph
Managing Director & Controller (Chief Accounting
Officer)
14
Exhibit Index
Exhibit No. Exhibit
- ----------- -------
10.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc.
and Financial Security Assurance Holdings Ltd. (filed as
Exhibit 2.1 to Current Report on Form 8-K (Commission File No.
1-12644) dated March 14, 2000, and incorporated herein by
reference).
10.2 Severance Policy for Senior Management (as Amended and Restated
Effective March 13, 2000).
27 Financial data schedules.
99 Financial statements of Financial Security Assurance Inc. for the
quarterly period ended March 31, 2000.