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 September 30, 1996
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 October 31, 1996, there were outstanding 32,276,301 shares of Common Stock,
par value $0.01 per share, of the registrant, including 2,300,004 shares held in
treasury.
INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income - Three months and Nine
months ended September 30, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders' Equity
- Nine months ended September 30, 1996 5
Consolidated Statements of Cash Flows
- Nine months ended September 30, 1996 and 1995 6
Notes to 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
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, December 31,
ASSETS 1996 1995
---- ----
Bonds, at market value (amortized cost of $1,057,684 and
$1,027,414) $ 1,061,294 $ 1,058,076
Stocks, at market value (cost of $7,606) 7,801
Short-term investments 102,759 52,666
----------- -----------
Total investments 1,171,854 1,110,742
Cash 7,394 1,118
Deferred acquisition costs 139,083 132,951
Prepaid reinsurance premiums 147,810 133,548
Reinsurance recoverable on unpaid losses 36,350 61,532
Receivable for securities sold 5,961 2,326
Other assets 39,945 48,045
----------- -----------
TOTAL ASSETS $ 1,548,397 $ 1,490,262
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 505,955 $ 463,897
Losses and loss adjustment expenses 81,452 111,759
Deferred federal income taxes 29,692 41,936
Ceded reinsurance balances payable 13,539 13,664
Payable for securities purchased 73,226 9,516
Notes payable 30,000 30,000
Accrued expenses and other liabilities 35,997 41,543
----------- -----------
TOTAL LIABILITIES
769,861 712,315
----------- -----------
Preferred stock (3,000,000 shares authorized; 2,000,000
issued and outstanding; par value of $.01 per share) 20 20
Common stock (50,000,000 shares authorized; 32,276,301
issued; par value of $.01 per share) 323 323
Additional paid-in capital - preferred 680 680
Additional paid-in capital - common 695,118 696,253
Unrealized gain on investments (net of deferred
income tax provision of $1,331 and $10,731) 2,474 19,931
Accumulated earnings 120,116 72,410
Deferred equity compensation 18,563 6,504
Less treasury stock at cost (2,302,899 and 774,276 shares
held) (58,758) (18,174)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 778,536 777,947
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,548,397 $ 1,490,262
=========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net premiums written (net of premiums ceded
of $10,545, $7,322, $43,021 and $23,414) $ 28,449 $14,568 $ 93,314 $ 54,917
Decrease (increase) in deferred premium revenue (6,812) 5,724 (29,193) (4,080)
-------- ------- --------- --------
Premiums earned (net of premiums ceded of
$7,687, $10,594, $28,854 and $27,020) 21,637 20,292 64,121 50,837
Net investment income 16,467 12,212 48,135 36,877
Net realized gains (losses) (3,338) 4,065 (1,826) 1,333
Other income 119 2,299 224 2,705
-------- ------- --------- --------
TOTAL REVENUES 34,885 38,868 110,654 91,752
-------- ------- --------- --------
Expenses:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $816, $1,035, $1,947
and $3,051) 1,482 1,517 4,637 4,822
Interest expense 541 1,624 57
Policy acquisition costs 5,461 5,216 18,081 12,413
Other operating expenses 4,453 3,797 11,919 10,056
-------- ------- --------- --------
TOTAL EXPENSES 11,937 10,530 36,261 27,348
-------- ------- --------- --------
INCOME BEFORE INCOME TAXES 22,948 28,338 74,393 64,404
Provision for income taxes 5,738 8,066 18,891 17,843
-------- ------- --------- --------
NET INCOME $ 17,210 $20,272 $ 55,502 $ 46,561
======== ======= ========= ========
Weighted average common shares outstanding 30,078 25,701 30,739 25,860
======== ======= ========= ========
Earnings per common share $ 0.58 $ 0.79 $ 1.81 $ 1.80
======== ======= ========= ========
See notes to condensed consolidated financial statements.
4
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Additional Additional Unrealized
Paid-In Paid-In Gain
Preferred Common Capital - Capital - (Loss) on
Stock Stock Preferred Common Investments
----- ----- --------- ------ -----------
BALANCE, December 31, 1995 $20 $323 $680 $696,253 $19,931
Net income
Net unrealized loss on investments (17,457)
Dividends paid on common stock
($0.08 to $0.095 per share)
Deferred equity compensation
Repurchase of common stock
Other common stock transactions (1,135)
Adjustment to prior year disposal of
subsidiary
--- ---- ---- -------- ---------
BALANCE, September 30, 1996 $20 $323 $680 $695,118 $ 2,474
=== ==== ==== ======== =========
Deferred
Equity
Accumulated Compen- Treasury
Earnings sation Stock Total
-------- ------ ----- -----
BALANCE, December 31, 1995 $ 72,410 $ 6,504 $(18,174) $777,947
Net income 55,502 55,502
Net unrealized loss on investments (17,457)
Dividends paid on common stock
($0.08 to $0.095 per share) (7,882) (7,882)
Deferred equity compensation 12,059 12,059
Repurchase of common stock (40,584) (40,584)
Other common stock transactions (1,135)
Adjustment to prior year disposal of
subsidiary 86 86
-------- ------- -------- --------
BALANCE, September 30, 1996 $120,116 $18,563 $(58,758) $778,536
======== ======= ========= ========
See notes to condensed consolidated financial statements.
5
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $ 97,506 $ 56,177
Policy acquisition and other operating expenses
paid, net (29,233) (28,589)
Loss and LAE paid, net (9,700) (832)
Net investment income received 48,858 31,659
Recoverable advances received (paid) 6,373 (9,551)
Federal income taxes paid (24,774) (9,020)
Interest paid (1,057) (57)
Other, net (2,712) 6,958
--------- ---------
Net cash provided by operating activities 85,261 46,745
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 864,310 431,220
Purchases of bonds (843,612) (508,703)
Purchases of property and equipment (1,576) (642)
Net decrease (increase) in short-term securities (48,591) 53,612
--------- ---------
Net cash used for investing activities (29,469) (24,513)
--------- ---------
Cash flows from financing activities:
Payment of management notes (5,624)
Dividends paid (7,882) (6,239)
Treasury stock (40,499) (10,443)
Other common stock transactions (1,135)
--------- ---------
Net cash used for financing activities (49,516) (22,306)
--------- ---------
Net increase in cash 6,276 (74)
Cash at beginning of period 1,118 2,742
--------- ---------
Cash at end of period $ 7,394 $ 2,668
========= =========
See notes to condensed consolidated financial statements.
6
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1996 and 1995
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 subsidiaries, collectively known as FSA) in the
business of providing financial guaranty insurance on asset-backed and municipal
obligations. At September 30, 1996, the Company was owned approximately 40.4% by
U S WEST Capital Corporation (U S WEST), 11.5% by Fund American Enterprises
Holdings, Inc. (Fund American), 6.4% by The Tokio Marine and Fire Insurance Co.,
Ltd. (Tokio Marine) and 41.7% by the public and employees.
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 generally accepted accounting
principles. These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1995 Annual
Report to Shareholders. The accompanying financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards 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 September 30, 1996
and for all periods presented have been made. The December 31, 1995 condensed
balance sheet data was derived from audited financial statements. The results of
operations for the periods ended September 30, 1996 and 1995 are not necessarily
indicative of the operating results for the full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company recharacterized its cash
equivalents as short-term investments. The amount of cash equivalents
recharacterized were $18.5 million and $38.1 million, as of September 30, 1996
and December 31, 1995, respectively.
3. COMMON STOCK TRANSACTIONS
In May 1996, the Company repurchased 1.0 million shares of its common
stock from U S WEST for a purchase price of $26.50 per share. At the same time,
the Company also entered into forward agreements with National Westminister Bank
Plc and Canadian Imperial Bank of Commerce (the Counterparties) in respect of
1.75 million shares (the Forward Shares) of the Company's common stock. Under
the forward agreements, the Company will have the right to either (a) purchase
the Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) 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 in cash or additional
shares, at its option. If the Company were to settle these Forward Shares at the
Company's September 30, 1996 market price of $29.50, it would receive
approximately 152 thousand shares.
7
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1996 and 1995 Third Quarter Results
The Company's 1996 third quarter net income was $17.2 million, compared with
$20.3 million for the same period in 1995, a decrease of 15.1%. The decrease in
net income was attributable to lower refundings along with the recognition of
capital losses in the investment portfolio in the third quarter of 1996 compared
with a higher level of refundings, the recognition of capitals gains and the
gain from a sale of a subsidiary in the third quarter of 1995. While 1996's
third quarter net income was below that of the previous year, core net income
(operating net income less the after-tax effect of refundings and prepayments)
was $18.8 million, compared with $13.3 million for the same period in 1995, an
increase of 41.5%. In December 1995, a subsidiary of the Company merged with
Capital Guaranty Corporation, resulting in the Company realizing benefits from
the merger in the current year when compared with the previous year. Total core
revenues in the third quarter of 1996 increased $10.7 million, from $26.4
million in 1995 to $37.1 million in 1996, while total core expenses increased
only $2.9 million. Operating net income (net income less the after-tax effect of
net realized capital gains or losses) was $19.4 million for the third quarter of
1996 versus $16.2 million for the comparable period in 1995, an increase of $3.2
million or 19.7%.
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. 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 increased 78.1%, from $21.9 million for the third quarter
of 1995 to $39.0 million for the third quarter of 1996. Also, gross PV premiums
written increased from $21.2 million in the third quarter of 1995 to $54.1
million in 1996, an increase of 155.6%. In the third quarter of 1996,
asset-backed gross PV premiums written were $28.5 million, as compared with $9.9
million in 1995, as several large transactions were underwritten within the
consumer recievables sector along with a large transaction in the central
government debt sector. For the municipal business, gross PV premiums written in
the third quarter increased from $11.3 million in 1995 to $25.6 million in 1996,
an increase of 127.5%. This increase was primarily attributable to the
additional underwriting capabilities realized by the Company from the merger.
In the third quarter of 1996, the Company insured par value of bonds totaling
$8.9 billion, a 223.3% increase over the same period in 1995. Compared with the
combined FSA and Capital Guaranty third quarter production in 1995, the increase
was 143.1%. FSA's third quarter asset-backed component rose 183.1% to $5.4
billion while its municipal sector rose 316.9% to $3.5 billion.
Net premiums written were $28.5 million for the third quarter of 1996, an
increase of $13.9 million or 95.3% when compared with $14.6 million in 1995. Net
premiums earned for the third quarter of 1996 were $21.6 million, compared with
$20.3 million in the third quarter of 1995, an increase of 6.6%. Premiums earned
from refundings and prepayments were $1.1 million for the third quarter of 1996
and $6.2 million for the same period of 1995, contributing $0.5 million and $2.9
million, respectively, to after-tax earnings. Net premiums earned for the
quarter grew 45.4% relative to the same period in 1995 when the effects of
refundings and prepayments are eliminated.
8
Net investment income was $16.5 million for the third quarter of 1996 and $12.2
million for the comparable period in 1995, an increase of 34.8%. The increase in
investment income is primarily due to additional invested assets acquired in the
merger. The Company's effective tax rate on investment income has decreased from
20.9% for the third quarter of 1995 to 20.6% in 1996, as the holdings of
tax-exempt securities has increased. In the third quarter of 1996, the Company
realized $3.3 million in net capital losses as compared with realized net
capital gains of $4.1 million and a net gain on the sale of a subsidiary of $2.2
million for the same period in 1995. Capital gains and losses are a by-product
of the normal investment management process and will vary substantially from
period to period.
The provisions for losses and loss adjustment expenses during the third quarters
of 1996 and 1995 were the same at $1.5 million, representing additions to the
Company's general loss reserve. The additions to the general 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 September 30,
1996, the unallocated balance in the Company's general loss reserve was $36.0
million.
Total policy acquisition and other operating expenses were $9.9 million for the
third quarter of 1996 compared with $9.0 million for the same period in 1995, an
increase of 10.0%. Excluding the effects of refundings, total policy acquisition
and other operating expenses were $9.6 million for the third quarter of 1996
compared with $7.3 million for the same period in 1995, an increase of 32.5%.
The increase was primarily the result of higher DAC amortization due to a higher
level of premiums earned and increased accruals for performance plan payouts due
to the addition of another plan year to the accrual base.
Income before income taxes for the third quarter of 1996 was $22.9 million, down
from $28.3 million, or 19.0%, for the same period in 1995.
The Company's effective tax rate for the third quarter of 1996 was 25.0%
compared with 28.5% for the same period in 1995. The decrease in effective tax
rates from the third quarter of 1995 to 1996 was due to a higher proportion of
tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased to
30,078,000 for the quarter ended September 30, 1996, from 25,701,000 during the
third quarter of 1995. This increase was due to the issuance of new shares in
the merger with Capital Guaranty, net of shares the Company repurchased as
discussed below in "Liquidity and Capital Resources." Earnings per share
decreased from $0.79 for the third quarter of 1995 to $0.58 for the same period
in 1996.
1996 and 1995 First Nine Months Results
The Company's net income for the first nine months of 1996 was $55.5 million,
compared with $46.6 million for the same period in 1995, an increase of 19.2%.
The increase was primarily attributable to higher core net income due to the
merger, partially offset by lower refundings and realization of capital losses.
Operating net income was $56.7 million for the first nine months of 1996 versus
$44.3 million for the comparable period in 1995, an increase of 28.1%. Core net
income was $55.1 million for the first nine months of 1996 versus $39.7 million
for the comparable period in 1995, an increase of 38.8%.
Gross premiums written increased 74.0%, to $136.3 million for the first nine
months of 1996 from $78.3 million for the first nine months of 1995. Also, gross
PV premiums written for the first nine months of 1996 increased by 79.5%, to
$171.4 million from $95.5 million for the same period in the prior year. In the
first nine months of 1996, asset-backed gross PV premiums written were up 94.4%
to $98.8 million, as business increased due to several large, high-premium
transactions in the pooled corporate obligations sector, as compared to gross PV
premiums written in the first nine months of 1995 of $50.9 million. For the
municipal business, gross PV premiums written in the first nine months increased
62.5% to $72.6 million in 1996 from $44.6 million in 1995.
9
In the first nine months of 1996, the Company insured bonds totaling $21.7
billion, a 104.6% increase over the same period in 1995. Compared with the
combined FSA and Capital Guaranty nine month production in 1995, the increase
would have been 63.9%. FSA's year-to-date asset-backed component rose 74.6% to
$13.0 billion while its municipal sector rose 174.7% to $8.7 billion.
Net premiums written were $93.3 million for the first nine months of 1996, an
increase of 69.9% when compared with 1995. The increase in net premiums written
was less than that of gross premiums written because the Company ceded increased
amounts on a facultative basis for the asset-backed business in 1996 as compared
with the first nine months of 1995. This facultative reinsurance was utilized on
the several large, high-premium transactions noted above, and therefore this
level of reinsurance may not continue at the same rate over the year.
Net premiums earned for the first nine months of 1996 were $64.1 million,
compared with $50.8 million in 1995, an increase of 26.1%. Premiums earned from
refundings and prepayments were $5.6 million for the first nine months of 1996
and $9.4 million for the same period of 1995, contributing $1.6 million and $4.5
million to after-tax earnings. Net premiums earned for the period grew 41.1%
relative to 1995 when the effects of refundings and prepayments were eliminated.
While prepayments may continue throughout the remainder of the year, no
assurances can be given that they will continue at the same level that was
experienced in the first nine months of 1996.
Net investment income was $48.1 million for the first nine months of 1996 and
$36.9 million for the comparable period in 1995, an increase of 30.5%. The
increase in investment income is primarily due to additional invested assets
acquired in the merger. The Company's effective tax rate on investment income
has decreased from 22.3% for the first nine months of 1995 to 19.7% in 1996, as
the holdings of tax-exempt securities has increased. Year-to-date 1996, the
Company has realized $1.8 million of capital losses as compared with realized
net capital gains of $1.3 million and the net gain on the sale of a subsidiary
of $2.2 million for the same period in 1995.
The provisions for losses and loss adjustment expenses during the first nine
months of 1996 and 1995 were $4.6 million and $4.8 million, respectively,
representing additions to the Company's general loss reserve.
Total policy acquisition and other operating expenses were $30.0 million for the
first nine months of 1996 compared with $22.5 million for the same period in
1995, an increase of 33.2%. Eliminating the effect of refundings and
prepayments, total policy acquisition and other operating expenses would have
increased 33.1% due to higher amortization of deferred acquisition costs in
1996. The increase was primarily the result of higher DAC amortization due to a
higher level of premiums earned and increased accruals for performance plan
payouts due to the addition of another plan year to the accrual base.
Income before income taxes for the first nine months of 1996 was $74.4 million,
up from $64.4 million, or 15.5%, for the same period in 1995.
The Company's effective tax rate for the first nine months of 1996 was 25.4%
compared with 27.7% for the same period in 1995. The decrease in effective tax
rates was due to a higher proportion of tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased from
25,860,000 during the first nine months of 1995 to 30,739,000, for the nine
months ended September 30, 1996. This increase was due to the issuance of new
shares in the merger, partially offset by a repurchase of shares as discussed
below in "Liquidity and Capital Resources." Earnings per share increased to
$1.81 for the first nine months of 1996 from $1.80 for the same period in 1995.
Liquidity and Capital Resources
The Company's consolidated invested assets and cash equivalents at September 30,
1996, net of unsettled security transactions, was $1,104.6 million, essentially
equal to the December 31, 1995 balance of $1,103.6 million. These balances
include the change in the market value of the investment portfolio, which had an
unrealized gain position of $30.7 million at December 31, 1995 as compared with
an unrealized gain position of $3.8 million at September 30, 1996.
A subsidiary of the Company has $30.0 million of outstanding long-term debt. The
Company has no material plans for capital expenditures within the next twelve
months.
10
Because the operations of the Company are conducted through FSA, the ability of
the Company to declare and pay dividends both on a short- and long-term basis
will be largely dependent upon FSA's ability to do so 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 State
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 has
paid dividends of $18.0 million for the nine months ended September 1996. Based
upon FSA's statutory statements for the quarter ended September 30, 1996 and
considering dividends which 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 $45.8 million. As a customary condition for
approving in September, 1994, the application of Fund American for a change in
control of FSA, the prior approval of the New York Superintendent is required
for payment of dividends by FSA to the Company for a period of two years
following such change of control. Such prior approval requirement lapsed in
September 1996. In addition, the New York Superintendent has approved the
repurchase by FSA of up to $75 million of its shares from its parent through
December 31, 1997, pursuant to which FSA has repurchased $15 million of its
shares through September 30, 1996.
FSA has several sources of liquidity as described in the Company's 1996 Annual
Report to Shareholders. In addition to these sources, in April 30, 1996, FSA
entered into an agreement with a AAA/Aaa rated international bank for a $125.0
million credit facility which expires on January 31, 2003, unless extended. This
facility is a seven-year stand-by irrevocable limited recourse line-of-credit
which provides liquidity and credit support to FSA in the event losses from
municipal obligations in FSA's insured portfolio exceed specified limits.
Repayment of amounts drawn under the line will be limited primarily to
recoveries of losses related to such municipal obligations.
In May 1996, the Company repurchased 1.0 million shares of its common stock from
U S WEST for a purchase price of $26.50 per share. At the same time, the Company
also entered into forward agreements with National Westminister Bank Plc and
Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1.75
million shares (the Forward Shares) of the Company's common stock. Under the
forward agreements, the Company will have the right to either (a) purchase the
Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) 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 in cash or additional
shares, at its option. If the Company were to settle these Forward Shares at the
Company's September 30, 1996 market price of $29.50, it would receive
approximately 152 thousand shares.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the nine-month
period ended September 30, 1996.
(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
-------------------------------------
November 12, 1996 Jeffrey S. Joseph,
Managing Director & Controller
(Chief Accounting Officer)
13
Exhibit Index
Exhibit No. Exhibit
- ----------- -------
1. Condensed financial statements of Financial Security Assurance
Inc. and Subsidiaries for the nine-month period ended
September 30, 1996