Struggling Bond Insurer ACA Capital Wins More Time

By Jonathan Stempel

NEW YORK (Reuters) - ACA Capital Holdings Inc (ACAH.PK), a troubled bond insurer, said it won an extra month from customers to unwind an estimated $69 billion of credit exposure stemming from the subprime mortgage crisis.

The company, whose main bond insurance unit was taken over last month by Maryland insurance regulators, said it extended an agreement with trading partners to waive collateral requirements, termination rights and policy claims through Feb 19. An earlier agreement expired on Jan 18.

In a statement late Sunday, ACA said it is working "to develop a permanent solution to stabilize its capital position," which could avoid a possible collapse. The company did not immediately return a call seeking comment on Monday.

Last month, Standard & Poor's cut ACA's financial strength rating 12 notches to "CCC," a low "junk" grade, from "A."

ACA has said it ended September with $69.1 billion of exposure related to credit default swap contracts. About $25.7 billion of contracts were related to asset- or mortgage-backed securities, tied mainly to subprime home loans made in late 2005 and 2006, it said.

The company said on Dec. 26 the S&P downgrade could have forced it to pay trading partners at least $1.7 billion, five times the $334.7 million of cash it had at the end of September. ACA posted a $1.04 billion third-quarter loss.

Banks are exposed to ACA through the purchase of insurance. Merrill Lynch & Co MER.N and Canadian Imperial Bank of Commerce (CM.TO) last week announced losses from the exposure.

Shares of ACA and the larger MBIA Inc (MBI.N) and Ambac Financial Group Inc (ABK.N) have tumbled in the last year on worry they wouldn't have enough capital to meet their obligations.