Fsa Short Essay

657 WordsOct 23, 20133 Pages
FSA: The Case to Short in Layman’s Terms FSA’s business is broken down into two segments: Financial products such as Guaranteed Investment Contracts (GIC’s) and Financial Guaranty’s. On the surface the most evident characteristics we as investors see at FSA are the firms leverage, general business environment and standing among Credit Rating Agencies. 1. MBIA’s Financial Guaranty business, the most well known in the world is leveraged at 149.1x (Debt Service Outstanding/Statutory Capital) while its GIC business is leveraged at 3.7x. The common stock traded at $90 a share two years ago and today it trades for $4. FSA’s Financial Guaranty business is leveraged at 212.4x while its GIC segment is 6.8x leveraged. FSA’s preferred stock was at $30 two years ago and today it trades for $16. It’s clear that the company is far more vulnerable to the will of its debtors if the weak market conditions continue. If the market uses the same methodology in valuing these competitors, as it should, it seems “that the market has not woken up to FSA just yet”, according to William 2. The main source of income for companies such as FSA is the new issuance of bonds and GIC’s. The value of the new issuances during Q3’07 was $1.9 billion and during the first quarter of 2008 FSA’s volume of new issuance was only 105 million. The greater than 90% decline in new issuance of course weakens the financial footing of the firm but also gives FSA less capital to deploy into future GIC’s. Essentially, the extreme weakness FSA is encountering now will hinder their chances of ever regaining their footing in the short to mid term. With such high short term debt ratio’s, time is not a luxury they have. To illustrate just how these numbers affect FSA from a financial standpoint we must look at the basics of their

More about Fsa Short Essay

Open Document