ACA Capital Holdings, Inc. (ACAH.PK)

bigbluepig (< 20) Submitted: 10/31/2007 1:48:05 PM : Start Price: $3.41 ACAH.PK Score: -70.09

Credit insurer has dropped 80% over past year due to credit crunch fears. Should be an easy 1-2 bagger in next 12 months as visability improves.

covan (< 20) Submitted: 8/5/2007 11:12:30 AM : Start Price: $6.90 ACAH.PK Score: +77.81

The August 6, 2007 issue of Barrons features ACA in a Jonathan R. Laing article titled “Subprime’s Ultimate Time Bomb?”. While not writing off the company entirely, the article spells out ACA’s exposure to potential default among the more than $15 Billion in insurance it has written on predominantly subprime securities. Indeed, Barrons implies that the company’s total CDO exposure is as high as $61 Billion, all on a capital base of just $326 Million. It’s scary! The fate of the company will be played out over the next year or two, but anyone holding ACA, or considering an investment would be well advised to check out this article.

Ronster23117 (< 20) Submitted: 8/1/2007 12:32:29 AM : Start Price: $5.50 ACAH.PK Score: -76.72

There is still unwarranted knee-jerk reaction to sub-primes. ACA's holdings are not hogtied into these. Bear Stearns has a track record of taking companies, bolstering them, holding them or turning them over (if the price and timing is right). Obviously, ACA has merit as does the company in process of being acquired by Bear Stearns. I wouldn't be surprised if the conference tomorrow am has some innovative measures proposed to hedge this sub-prime fisco and keep ACA in the black and on track. It's a diamond that's about to be polished. I see and upward roller coaster...and I'm buckled in and holding on for the ride!

sogreek (< 20) Submitted: 7/24/2007 4:33:54 PM : Start Price: $5.19 ACAH.PK Score: -72.98

the subprime sector of course will have it losses...but I see more panic selling than the tech bubble. When this company finally comments I dont expect a great report, but I do expect the market to realize they sold this stock into a very oversold position. Should rally back to 9.

hish0907 (< 20) Submitted: 7/15/2007 10:49:45 AM : Start Price: $8.47 ACAH.PK Score: -72.65

ACA Capital

Here is what they do:
1) Wrap Muni bonds at the 'A' level
2) Insure HIGHER than AAA bonds of corp, mortgage, etc
3) Structure/Manage CDOs

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Some GAAP related issues with the above:
2) When they insure bonds higher than the AAA level they have to mark to market that insurance piece even though they will hold to maturity. When this value changes it affects GAAP income statement. You will see volatility here. However, management understands this and they intend to hold to maturity (where they get back par if there are no losses) so they report 'Net economic income' and if they think something will be a loss then they report that.

3) They have done 20+ CDOS and in the early days 2002-2005 they had to buy all the equity in the CDOs they issued. If you buy all the equity then you have to consolidate the assets and liabilities that go with the equity piece you own. Example:

Suppose you own $20 in equity that is backed by $100 in assets and $80 in liability. Well because of GAAP you have to put the $100 on your asset balance sheet and $80 on your liability side. Now if prices of the assets change to say $70 then you have incurred a loss of $30. This is incorrect, since your ownership is capped at $20, the amount of the equity you own. Non recourse finaning.

Because of GAAP the balance sheet is messy because for all CDOs that they own the entire equity they have added all the respective assets and liabilities to their own balance sheet. It makes the company look levered.

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Now what does all that mean?

So non GAAP book value is 14.35. They will have losses on their CDO equity. We can be very conservative and say that these deals will write down:

ACA ABS 2003-1 (ACA EQUITY = 18M)
ACA ABS 2006-2 (ACA EQUITY = 3.5M)
ACA Aquarius 2006-1 (ACA EQUITY = NONE)
ACA ABS 2006-1 (ACA EQUITY = 1.4M)
ACA ABS 2007-1 (ACA EQUITY = 1.4M)
ACA ABS 2003-2 (ACA EQUITY = 33.5M)

total expected loss = 57.8M

57.8 / 37.1 shares = ($1.55)
Current book value as of 1Q07 = 14.35
Expected book value (not including any earnings if any from other business) = $12.79

THEY HAVE A HEDGE OF $37M ON THEIR CDO EQUITY WHICH I HAVE NOT INCLUDED IN THE CALCULATION.

Now keep in mind that book value is growing over time because of the insurance, cdo fees, and structured credit income. It is expected to grow at $1.70 per year.

At these levels I think if you can stand the noise they should do ok.

billionairedream (< 20) Submitted: 7/13/2007 11:00:09 AM : Start Price: $8.98 ACAH.PK Score: -72.70

They have cancelled the registration for stock sale, which will bring the stock back to the previous value of around $14.

Bogeasy (68.95) Submitted: 7/10/2007 3:14:03 PM : Start Price: $9.55 ACAH.PK Score: -74.67

beaten way too badly.

Badcatz (< 20) Submitted: 7/6/2007 3:29:37 PM : Start Price: $11.01 ACAH.PK Score: -74.00

Extremely undervalued and getting credited with more exposure to Mortgage defaults than it has.