Business Context and Reporting Period
This Form 8-K was filed by Assured Guaranty Ltd. on October 6, 2011, under Item 7.01 (Regulation FD Disclosure). The filing addresses the status of indemnity and protection arrangements related to the Financial Products (FP) segment of Financial Security Assurance Holdings Ltd. (FSAH), which Assured Guaranty acquired from Dexia SA in 2009 but did not retain. The FP segment, retained by Dexia, issued Guaranteed Investment Contracts (GICs) and Medium Term Notes (MTNs) guaranteed by Assured Guaranty Municipal Corp.
Key Financial Metrics
The filing provides specific data regarding the assets and liabilities of the FP Companies as of September 30, 2011:
- Accreted GIC Liabilities: $5.7 billion (down from $11.8 billion at the time of acquisition).
- FP Companies Assets: Approximately $7.5 billion.
- Asset Coverage: Assets exceeded liabilities by approximately 30%.
- Collateral Status: As of September 29, 2011, no additional collateral was required to be posted by Dexia.
The filing does not provide revenue, profit, cash flow, or debt metrics for Assured Guaranty Ltd. itself, as this report focuses solely on the specific contingent liability arrangement.
Material Changes
The primary material change noted is the significant reduction in the accreted balance of GIC liabilities from $11.8 billion at acquisition to $5.7 billion as of September 30, 2011. Additionally, the guaranteed assets supporting these obligations have been sold as part of an asset divestment program announced by Dexia in May 2011. The filing confirms that the required asset analysis on September 29, 2011, showed sufficient assets to cover liabilities, resulting in no immediate requirement for Dexia to post additional collateral.
Outlook, Risks, and Contingencies
Assured Guaranty believes the assets owned by the FP Companies are sufficient to meet their obligations. However, the filing outlines several risks and contingencies:
- Future Collateral Requirements: Dexia is required to post additional collateral if a shortfall in assets compared to liabilities occurs in the future.
- Indemnity Scope: Dexia indemnifies Assured Guaranty for litigation arising from the FP business and for MTNs issued by the FP Companies.
- Government Guarantees: Payments on assets supporting the GICs were guaranteed by the French and Belgian governments, contingent on the FP Companies owning such assets.
- Forward-Looking Risks: Potential adverse developments include changes in collateral value, Dexia's financial condition, the financial strength rating of Assured Guaranty Municipal Corp., and actions by the French and Belgian governments.
Investor Verification Checklist
- Verify the current financial condition and credit rating of Dexia SA, as it remains the obligor for indemnities and potential collateral postings.
- Monitor the status of the asset divestment program and the continued ownership of assets by the FP Companies to ensure government guarantees remain valid.
- Review the financial strength rating of Assured Guaranty Municipal Corp., as it is the guarantor of the underlying GICs and MTNs.
- Track future quarterly asset/liability analyses to determine if Dexia is required to post additional collateral.