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, 2002
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 May 10, 2002, there were 33,216,900 outstanding shares of Common Stock of the
registrant (excludes 301,095 shares of treasury stock).
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets - As of March 31, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations and
Comprehensive Income - Three months ended
March 31, 2002 and 2001 4
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Three months ended March 31, 2002 5
Condensed Consolidated Statements of Cash Flows - Three
months ended March 31, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
ASSETS
Bonds at market value (amortized cost of $2,362,603 and $2,236,979) $ 2,446,080 $ 2,329,269
Equity investments at market value (cost of $10,006) 10,076 10,076
Short-term investments 128,830 218,727
Guaranteed investment contract bond portfolio at market value
(amortized cost of $697,343 and $428,016) 693,675 427,993
Guaranteed investment contract short-term investment portfolio 95,600 228,038
----------- -----------
Total investments 3,374,261 3,214,103
Cash 22,783 7,784
Deferred acquisition costs 248,257 240,492
Prepaid reinsurance premiums 438,430 420,798
Reinsurance recoverable on unpaid losses 27,659 28,880
Investment in unconsolidated affiliates 85,633 82,511
Other assets 306,527 312,328
----------- -----------
TOTAL ASSETS $ 4,503,550 $ 4,306,896
=========== ===========
LIABILITIES AND MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 1,132,290 $ 1,090,332
Losses and loss adjustment expenses 115,070 114,428
Guaranteed investment contracts 758,683 601,023
Deferred federal income taxes 102,771 101,971
Ceded reinsurance balances payable 44,900 34,961
Notes payable 330,000 330,000
Deferred compensation 93,300 95,948
Minority interest 48,217 46,157
Payable for securities purchased 81,791 85,488
Accrued expenses and other liabilities 118,596 170,630
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 2,825,618 2,670,938
----------- -----------
Common stock (200,000,000 shares authorized; 33,517,995
issued; par value of $.01 per share) 335 335
Additional paid-in capital - common 903,494 903,494
Accumulated other comprehensive income (net of deferred income
tax provision of $26,872 and $29,394) 56,675 62,966
Accumulated earnings 717,428 669,163
Deferred equity compensation 23,716 23,716
Less treasury stock at cost (301,095 shares held) (23,716) (23,716)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,677,932 1,635,958
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST
AND SHAREHOLDERS' EQUITY $ 4,503,550 $ 4,306,896
=========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
--------- ---------
Revenues:
Net premiums written (net of premiums ceded of $49,350 and $32,316) $ 95,241 $ 71,373
========= =========
Premiums earned (net of premiums ceded of $31,312 and $22,095) 61,470 51,264
Net investment income 33,398 31,714
Net realized gains 1,083 1,930
Guaranteed investment contract net revenues 3,032
Other income 4,068 257
--------- ---------
TOTAL REVENUES 103,051 85,165
--------- ---------
Expenses:
Losses and loss adjustment expenses 2,912 2,778
Interest expense 5,861 4,154
Policy acquisition costs 12,365 9,274
Guaranteed investment contract net expenses 2,679
Other operating expenses 10,263 8,079
--------- ---------
TOTAL EXPENSES 34,080 24,285
--------- ---------
Minority interest and equity in earnings
of unconsolidated affiliates 1,062 (37)
--------- ---------
INCOME BEFORE INCOME TAXES 70,033 60,843
Provision for income taxes 15,913 13,153
--------- ---------
NET INCOME 54,120 47,690
--------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period (5,515) 10,693
Less: reclassification adjustment for gains
included in net income 776 1,345
--------- ---------
Other comprehensive income (loss) (6,291) 9,348
--------- ---------
COMPREHENSIVE INCOME $ 47,829 $ 57,038
========= =========
See notes to condensed consolidated financial statements.
4
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONDENSED 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, 2001 $335 $903,494 $62,966 $669,163 $23,716 $(23,716) $1,635,958
Net income 54,120 54,120
Dividends (5,855) (5,855)
Net unrealized loss on investments,
net of tax (6,291) (6,291)
---- -------- ------- -------- ------- -------- ----------
BALANCE, March 31, 2002 $335 $903,494 $56,675 $717,428 $23,716 $(23,716) $1,677,932
==== ======== ======= ======== ======= ======== ==========
See notes to condensed consolidated financial statements.
5
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Premiums received, net $ 110,202 $ 74,576
Policy acquisition and other operating expenses paid, net (87,889) (70,924)
Recoverable advances recovered 742 1,536
Losses and loss adjustment expenses paid, net (604) (20,279)
Net investment income received 36,763 32,902
Federal income taxes paid (17,080) (10,523)
Interest paid (8,926) (4,134)
Other 4,333 1,155
--------- ---------
Net cash provided by operating activities 37,541 4,309
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 146,410 116,706
Purchases of bonds (274,557) (159,399)
Purchases of guaranteed investment contract bonds (269,950)
Purchases of property and equipment (2,168) (467)
Net decrease in guaranteed investment contract short-term
investments 132,438
Net decrease in short-term investments 90,225 45,735
Other investments 192 241
--------- ---------
Net cash used for investing activities (177,410) 2,816
--------- ---------
Cash flows from financing activities:
Dividends paid (5,854)
Proceeds from issuance of guaranteed investment contracts 160,722
--------- ---------
Net cash provided by financing activities 154,868
--------- ---------
Net increase in cash 14,999 7,125
Cash at beginning of period 7,784 9,411
--------- ---------
Cash at end of period $ 22,783 $ 16,536
========= =========
See notes to condensed consolidated financial statements.
6
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company incorporated 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. The Company also offers guaranteed investment contracts
through its wholly owned subsidiaries, FSA Capital Markets Services LLC and FSA
Capital Management Services LLC. The Company is an indirect subsidiary of Dexia
S.A. (Dexia), a publicly held Belgian corporation.
2. BASIS OF PRESENTATION
The accompanying condensed 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 of America. These statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. The accompanying financial statements have not been audited by
independent accountants in accordance with auditing standards generally accepted
in the United States of America 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, 2002 and for all periods presented, have been made. The December 31,
2001 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 of America. The results of operations for the
periods ended March 31, 2002 and 2001 are not necessarily indicative of the
operating results for the full year. Certain prior-year balances have been
reclassified to conform to the 2002 presentation.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141) and No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142). SFAS No. 141 requires the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, establishes specific
criteria for the recognition of intangible assets separately from goodwill, and
requires unallocated negative goodwill to be written off immediately as an
extraordinary gain (instead of being deferred and amortized). These provisions
are effective for business combinations accounted for by the purchase method for
which the date of acquisition is after June 30, 2001. Certain SFAS No. 141
provisions also apply to purchase business combinations for which the
acquisition date was before July 1, 2001. SFAS No. 142 addresses how intangible
assets acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in the financial
statements. This statement requires that goodwill no longer be amortized and
instead be subject to an impairment test performed at least annually. The
provisions of SFAS No. 142 are effective for fiscal years beginning after
December 31, 2001. The implementation of these standards, on January 1, 2002,
did not have a material effect on the Company's financial position, results of
operations or cash flows.
7
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Management and investors consider the following measures important in
analyzing the financial results of the Company: core net income, operating net
income, core revenues, core expenses and gross present value of premiums written
(gross PV premiums written). However, none of these measures are promulgated in
accordance with accounting principles generally accepted in the United States of
America and should not be considered as substitutes for net income, revenues,
expenses and gross premiums written.
2002 AND 2001 FIRST QUARTER RESULTS
The Company's 2002 first quarter net income was $54.1 million, compared
with net income of $47.7 million for the same period in 2001. Operating net
income (net income less the after-tax effect of net realized capital gains or
losses, the cost of the equity-based compensation programs, changes in fair
value of certain insurance products as required by Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133) and other non-operating items) was $61.3 million for
the first quarter of 2002 versus $49.5 million for the comparable period in
2001, an increase of $11.8 million, or 23.9%. Core net income (operating net
income less the after-tax effect of refundings and prepayments) was $60.2
million, compared with $48.9 million for the same period in 2001, an increase of
23.0%. Total core revenues increased $19.9 million, from $82.1 million in the
first quarter of 2001 to $102.0 million in the first quarter of 2002, while
total core expenses increased only $4.2 million.
The Company employs 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,
GROSS PV PREMIUMS WRITTEN, reflects future installment premiums discounted to
their present value, as well as upfront premiums, but only for business
originated in the period. Business ceded through reinsurance placed by a third
party is excluded from gross PV premiums written. The Company considers gross PV
premiums written to be the better indicator of a given period's origination
activity because a substantial portion of the Company's premiums is collected in
installments, a practice typical of the asset-backed business. To calculate
gross PV premiums written, management estimates the life of each transaction
that has installment premiums and discounts the future installment premium
payments. The Company calculates the discount rate as the average pre-tax yield
on its investment portfolio for the previous three years. Accordingly,
year-to-year comparisons of gross PV premiums written are affected by the
application of different discount factors. The rates for 2002 and 2001 were
5.91% and 5.79%, respectively. Management intends to revise the discount rate in
future years according to the same formula, in order to reflect interest rate
changes.
The Company's gross premiums written increased 39.4%, to $144.6 million for
the first quarter of 2002 from $103.7 million for the first quarter of 2001.
Gross PV premiums written increased 26.8%, to $174.8 million in the first
quarter of 2002 from the first quarter result of $137.8 million in 2001. In the
first quarter of 2002, U.S. asset-backed gross PV premiums written were $75.9
million as compared with $62.1 million in the same period of 2001, an increase
of 22.2%; U.S. municipal gross PV premiums written were $75.6 million as
compared with $42.3 million, an increase of 78.7%; and international gross PV
premiums were $23.3 million as compared with $33.4 million, a decrease of 30.2%.
8
In the first quarter of 2002, the gross par value of obligations insured by
the Company totaled $28.5 billion, an increase of 63.6% compared with the first
quarter of 2001. FSA's first quarter 2002 U.S. asset-backed component rose 71.7%
to $11.6 billion and the U.S. municipal component rose 46.2% to $11.7 billion.
The international sector increased to $5.1 billion in the first quarter of 2002
from $2.6 billion in the first quarter of 2001.
The Company's U.S. asset-backed originations during the first quarter of
2002 were well balanced between the consumer finance and collateralized debt
obligation (CDO) sectors. Opportunities that met the Company's credit and
pricing requirements were more limited in the residential mortgage sector, but
the Company did guarantee a number of Triple-A shadow-rated issues, where its
guaranty provides additional liquidity. Growth in asset-backed par insured for
the first quarter of 2002 compared to the first quarter of 2001 exceeded that of
asset-backed gross PV premiums written because the Company insured a greater
volume of transactions with Triple-A underlying credit quality. In the U.S.
municipal bond market, new issue volume reached $64.7 billion for the quarter,
and insurance penetration increased to 53% from 44% in last year's comparable
period. In this sector, the Company guaranteed approximately 33% of the insured
new issues sold during the period. In the international sector, deal flow was
especially strong in Europe, where the Company insured a number of Triple-A
shadow-rated synthetic CDOs and an index-linked issue to fund capital projects
at a university. Approximately 88% of international business was of Triple-A
underlying credit quality, compared with 43% in the same period last year.
Net premiums written were $95.2 million for the first quarter of 2002, an
increase of 33.4% compared with the first quarter of 2001. Net premiums earned
for the first quarter of 2002 were $61.5 million, compared with $51.3 million in
the first quarter of 2001, an increase of 19.9%. Premiums earned from refundings
and prepayments were $2.3 million for the first quarter of 2002 and $1.2 million
for the same period of 2001, contributing $1.1 million and $0.6 million,
respectively, to after-tax earnings. For the first quarter of 2002, premium
adjustments relating to the mark-to-market adjustment required by SFAS No. 133
resulted in a decrease of $8.9 million to premiums earned. Net premiums earned
for the quarter grew 35.9% relative to the same period in 2001 when the effects
of refundings and prepayments and the mark-to-market adjustment are eliminated.
Net investment income was $33.4 million for the first quarter of 2002 and
$31.7 million for the comparable period in 2001, an increase of 5.3%. The
Company's effective tax rate on investment income was 11.0% for the first
quarter of 2002 compared with 11.4% for the same period in 2001. In the first
quarter of 2002, the Company realized $1.1 million in net capital gains compared
with $1.9 million for the same period in 2001. Capital gains and losses are
generally a by-product of the normal investment management process and will vary
substantially from period to period.
The provision for losses and loss adjustment expenses during the first
quarter of 2002 was $2.9 million compared with $2.8 million in 2001,
representing additions to the Company's general loss reserve. Additions to the
general loss reserve represent management's estimate of the amount required to
adequately cover the net cost of claims. The Company monitors these reserves on
an ongoing basis and may periodically adjust such reserves, upward or downward,
based on the Company's actual loss experience, its future mix of business and
future economic conditions. At March 31, 2002, the Company's general loss
reserve was $71.8 million.
Total policy acquisition and other operating expenses (excluding the cost
of the equity-based compensation programs of $7.3 million for the first quarter
of 2002 compared with $4.6 million for the same period of 2001) were $15.3
million for the first quarter of 2002 compared with $12.7 million for the same
period in 2001. Excluding the effects of refundings, total policy acquisition
and other operating expenses were $14.7 million for the first quarter of 2002
compared with $12.4 million for the same period in 2001.
In the fourth quarter of 2001, the Company's newly formed asset management
group began issuing FSA-insured guaranteed investment contracts (GICs). As of
March 31, 2002, the Company had recorded $758.7 million in GICs. For the first
quarter of 2002, these transactions resulted in a net interest margin of $0.4
million.
Income before income taxes for the first quarter of 2002 was $70.0 million
compared with $60.8 million for the same period in 2001.
9
The Company's effective tax rate for the first quarter of 2002 was 22.7%
compared with 21.6% for the same period in 2001. The effective tax rate differs
from the statutory tax rate of 35.0% primarily due to tax-exempt interest
income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated invested assets and cash equivalents at March
31, 2002, net of unsettled security transactions, was $3,298.2 million, compared
with the December 31, 2001 balance of $3,132.6 million. These balances include
the change in the market value of the investment portfolio, which had an
unrealized gain position of $83.5 million at March 31, 2002 and $92.4 million at
December 31, 2001.
At March 31, 2002, the Company had, at the holding company level, an
investment portfolio of $17.1 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 will largely depend upon the receipt of dividends or
surplus note payments from 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 the New York
Insurance Law, FSA may pay dividends out of statutory 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 Superintendent of
Insurance of the State of New York (the New York Superintendent) or (ii)
adjusted net investment income during this period. FSA paid no dividends in the
first quarter of 2002 or during 2001. Based upon FSA's statutory statements for
the quarter ended March 31, 2002, the maximum amount available for payment of
dividends by FSA without regulatory approval over the following 12 months would
be approximately $98.5 million. However, as a customary condition for approving
the application of Dexia S.A. for a change in control of FSA, the prior approval
of the New York Superintendent is required for any payment of dividends by FSA
to the Company for a period of two years following the change in control, which
occurred on July 5, 2000. In 2001, Financial Security Assurance International
Ltd., the Company's Bermuda domiciled insurance company subsidiary, paid a
preferred dividend of $1.6 million to its minority interest owner.
At March 31, 2002, the Company held $144.0 million of surplus notes of FSA.
Payments of principal and interest on such notes may be made only with the
approval of the New York Superintendent. FSA paid $2.8 million and $1.5 million
in interest on such notes in the first quarter of 2002 and 2001, respectively.
In the first quarter of 2002, the Company paid dividends of $5.9 million.
No dividends were paid in the first quarter of 2001.
FSA's primary uses of funds are to pay operating expenses and to pay
dividends to, or principal of or interest on surplus notes held by, its parent.
FSA's funds are also required to satisfy claims 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 absent consent of the insurer 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.
10
FSA has a credit arrangement, aggregating $125.0 million at March 31, 2002,
provided by commercial banks and intended for general application to
transactions insured by FSA and its insurance company subsidiaries. At March 31,
2002, there were no borrowings under this arrangement, which expires April 25,
2003, unless extended.
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 the average annual
debt service of the covered portfolio multiplied by 5.00%, which amounted to
$598.0 million at March 31, 2002. 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 seven-year term that will expire on
April 30, 2009 and contains an annual renewal provision subject to approval by
the banks. No amounts have been utilized under this commitment as of March 31,
2002.
In August 1994, FSA entered into a facility agreement with Canadian Global
Funding Corporation (Canadian Global) and Hambros Bank Limited. Canadian Global
was established to provide a source of liquidity to refinance FSA-insured
transactions that experience difficulty in meeting debt service obligations. The
amount of the facility is $186.9 million, of which $124.3 million was unutilized
at March 31, 2002. The facility expires in 2004.
FSA-insured GICs subject the Company to risk associated with early
withdrawal of principal allowed by the terms of the GICs. The majority of
municipal GICs insured by FSA relate to debt service reserve funds and
construction funds in support of municipal bond transactions. Debt service
reserve fund GICs may be drawn unexpectedly upon a payment default by the
municipal issuer. Construction fund GICs may be drawn unexpectedly when
construction of the underlying municipal project does not proceed as expected.
In addition, most FSA-insured GICs allow for withdrawal of GIC funds in the
event of a downgrade of FSA, typically below AA- by S&P or Aa3 by Moody's,
unless the GIC provider posts collateral or otherwise enhances its credit. The
Company manages this risk through the maintenance of liquid collateral and
liquidity agreements now being implemented.
The Company has no plans for material capital expenditures within the next
twelve months.
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, 2001. 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.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
99 Financial statements of Financial Security Assurance Inc. for the
quarterly period ended March 31, 2002.
(b) REPORTS ON FORM 8-K
None
12
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 13, 2002 Jeffrey S. Joseph
Managing Director & Controller
(Chief Accounting Officer)
13
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
- ----------- -------
99 Financial statements of Financial Security Assurance Inc. for
the quarterly period ended March 31, 2002.