NEW YORK (Reuters) - Struggling bond insurer ACA Financial Guaranty Corp is set to ask trading partners for more time to unwind its insurance contracts, The Wall Street Journal reported on Friday.
Standard & Poor’s in December cut ACA Financial Guaranty’s credit rating to junk.
That move could have triggered a cash shortage by forcing it to post collateral, but parent company ACA Capital Holdings ACAH.PK had said it would not have to do so until January 18 thanks to a forbearance agreement with counterparties.
ACA had nearly $70-billion of exposure to collateralized debt obligations as of the end of September.
Friday’s report, quoting people familiar with the matter, said ACA is likely to announce an extension to give it more time to work out arrangements.
One possible solution would be a rescue plan giving the counterparties stakes in a restructured bond-insurance company, while another was a capital infusion, it said.
ACA officials were not immediately available for comment.
Banks and brokers could suffer billions of dollars of losses from credit protection they bought from ACA, if the insurer collapses.
The New York Times reported last month that Merrill Lynch & Co Inc MER.N, Bear Stearns Co Inc BSC.N, and other large banks were in talks to bail out ACA.
Maryland state regulators are now in charge of significant business decisions for the ACA bond insurance unit, according to a regulatory filing in late December.
Reporting by Ritsuko Ando; Editing by Michael Urquhart and Valerie Lee