Financial Guaranty Insurance Co. last week announced a major restructuring of its business lines and unveiled two new products -- municipal cash management and reinvestment contracts.
The ventures will be run through a new subsidiary, FGIC Capital Markets Services Group, which will also house the bond insurer's liquidity facility provider, known as FGIC Securities Purchase Inc.
Richard A. Price, formerly managing director of marketing and corporate development at FGIC, will head the new subsidiary as managing director.
Senior investment manager Dominick Carollo will lead the proceeds-reinvestment business, with senior traders Chris Patronis and Terrence L. Smart assisting him. The August hiring of Carollo and Patronis, veteran GIC providers formerly with Svenska Handelsbanken, raised speculation that the firm would soon offer guaranteed investment contracts.
According to a report from Moody's Investors Service, FGIC Capital Markets will issue GICs to municipalities for investment of acquisition, construction, escrow, and debt service reserve funds.
GE Capital Corp. will guarantee FGIC Capital Markets' payment obligations under each investment contract, which is expected to gamer triple-A ratings for the 'subsidiary's transactions, Moody's said. The arrangement with GE Capital resembles a relationship covering FGIC's liquidity provider.
The municipal cash management area will be headed by Stephen A. Attanasio, a senior product manager who was formerly vice president in FGIC's marketing group. The program will provide municipalities and school districts with a "liquid and convenient way to invest operating funds for the short-term," FGIC said.
The new products "all leverage off of FGIC's other core strengths, such as our name being synonymous with safety and our triple-A rating," Price said. He added that the company does not expect to stop at these new products, but expects to develop its strengths into other new ventures in the future.
Although FGIC remains alone among the bond insurers in offering liquidity facilities for variable-rate financings, it will face competition from AMBAC Inc. and MBIA Inc. in the proceeds rein investment arena, and from MBIA in cash management.
In October of last year, AMBAC made the industry's first foray into the investment contract business when it began offering contracts through its subsidiary, AMBAC Capital Management Inc. Rating agency sources said the success of the product, known as ACMI, prompted competitors to begin development of similar products. MBIA began offering investment contracts through MBIA Municipal Investment Management Co. in August.
The bond insurers have stepped into the void created by the well publicized failures of GIC providers Executive Life Insurance Co. and Mutual Benefit Life Insurance Co.
Last year, MBIA began offering an investment management program known as CLASS through its MBIA Municipal Investors Service Corp. subsidiary.