1304623--4/2/2007--ACA_Capital_Holdings

related topics

{loss, insurance, financial}

{regulation, change, law}

{acquisition, growth, future}

{investment, property, distribution}

{stock, price, operating}

{provision, law, control}

{debt, indebtedness, cash}

{loan, real, estate}

{control, financial, internal}

{capital, credit, financial}

{regulation, government, change}

{system, service, information}

{stock, price, share}

{competitive, industry, competition}

{condition, economic, financial}

{personnel, key, retain}

Risks Related to Our Business Our failure to effectively analyze and monitor credit and other risks could have a material adverse effect on our financial condition, results of operations and capital adequacy. We face risks from the concentration of our liabilities and investments. General economic and market factors may materially adversely affect our loss experience, the demand for our products and our financial results. If S P lowers the financial strength rating that it has assigned to ACA Financial Guaranty, our ability to generate new business in our Structured Credit and Public Finance business lines, as well as our results of operations and liquidity would be materially adversely affected. In our Structured Credit business we have contingent collateral posting requirements that in adverse circumstances may severely strain our liquidity and capital resources. In our Structured Credit business we are dependent on counterparties perception of our creditworthiness. We may need to refinance our existing debt and otherwise require additional capital in the future, which may not be available or may only be available on unfavorable terms. We assume construction and completion risk in our Public Finance transactions. Our failure to accurately set our loss reserves may result in having to increase our loss reserves or make payments in excess of our loss reserves, which could materially and adversely impact our financial condition. We have legacy exposure on manufactured housing bonds we insured. Changes in accounting rules relating to the financial guaranty industry could have a material adverse effect on the perception of our results of operations and that of other industry participants. Certain of our CDOs must be consolidated in accordance with applicable accounting rules which introduces volatility into our balance sheet and statement of operations which may result in negative investor perception of us. Our net income may be volatile from reporting period to reporting period because a portion of the credit risk we assume is in the form of insured credit swaps and a number of our consolidated CDOs utilize interest rate swaps, both of which are derivatives and are accounted for under FAS 133/149, requiring that these instruments be marked to market. We operate in competitive environments. We may experience fluctuations in quarterly and annual results due to the limited number of transactions we enter into in a given period. We have a limited operating history. Future growth into international markets is subject to additional risks that are beyond our control. Our continued growth into additional product areas and markets could strain our resources. We are a holding company and our cash flow is dependent on payments by our subsidiaries, which are subject to significant limitations. Our level of indebtedness could adversely affect our operations and growth and could limit our ability to react to changes in the economy or the markets in which we compete. We may incur liabilities because of the unconditional nature of our financial guaranty insurance policies. If our investments perform poorly, our financial results and ability to conduct business could be harmed. Hedging transactions may limit our income or result in losses. We are highly dependent on information systems and third parties, and systems failures could significantly disrupt our business. We are dependent on key executives. In our Public Finance business we insure low investment grade and high non-investment grade credit risks which may require significant loss mitigation efforts. In our CDO Asset Management business we are subject to termination under the provisions of our investment advisory agreements. We may be precluded from participating in certain opportunities that we otherwise would participate in due to our role as a CDO asset manager and potential conflicts of interest. Risks Related to the Regulation of Our Businesses The regulatory systems under which we operate, and potential changes in regulation, could significantly and adversely affect our business. If we were required to register as an investment company under the Investment Company Act of 1940, it could limit our growth and increase our costs; maintaining our exempt status may limit our options in the future. Our subsidiary, ACA Management, is a registered investment adviser under the Investment Advisers Act of 1940 and if ACA Management fails to comply with applicable related regulation we may not be able to continue to grow our CDO Asset Management business in accordance with our business plan. ACA Capital Management (U.K.) is authorized and regulated by the FSA in the United Kingdom and if ACA Capital Management (U.K.) fails to comply with applicable related regulation we may not be able to continue to grow our CDO Asset Management business in accordance with our business plan. Our ability to implement, for the fiscal year ended December 31, 2007, the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely and satisfactory manner could materially impact our business and cause the price of our common stock to fall. Changes in tax laws could affect the demand for our services and products. Risks Related to Our Common Stock We do not currently intend to pay dividends in the foreseeable future. Insiders have substantial control over us and this could limit your ability to influence the outcome of key transactions, including a change in control. Conflicts of interest may arise because some of our directors are principals of our stockholders. Applicable insurance laws may make it difficult to effect a change in control of our company. We have anti-takeover defenses that could impede an acquisition or an attempt to replace or remove our directors, which could diminish the value of our common stock.

Full 10-K form ▸

1304623--4/2/2007--ACA_Capital_Holdings_Inc