Bond insurer ACA Capital in restructuring pact

NEW YORK (Reuters) - Bond insurer ACA Capital Holdings Inc (ACAH.PK: Quote, Profile, Research, Stock Buzz) said on Friday it reached a deal with a group of investment banks to reduce liabilities on thorny asset-backed securities.

ACA, like some others in its sector, has been badly hit by losses stemming from guarantees made on repackaged debt, including mortgage-backed securities.

The insurer, in a statement, said it entered into the agreements, which reduce its obligations, because its own financial condition had deteriorated.

The deal could serve as a blueprint for other troubled bond insurers trying to negotiate their way out of contracts on securities that have nose-dived in value since the U.S. mortgage crisis set in.

Much larger bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research, Stock Buzz) has been able to reduce some of its total obligations through steps such as paying Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) $850 million to exit some insurance contracts.

But on Friday, MBIA, the largest U.S. bond insurer, said after months of negotiations it had still not been able to reach deals to commute, or cancel, contracts. Chief Executive Jay Brown, on a post-earnings conference call, said it was possible it may not be able to reach any such agreements.

Under ACA's restructuring, counterparties will indirectly oversee the run-off of the insurer's remaining obligations, primarily municipal bond guarantees written by the company's main business unit, ACA Financial Guaranty Corp.

An insurer in run-off is closed to new business, but remains open with a skeleton staff to honor claims on outstanding contracts.

Under ACA's deal, the counterparties will be able to share in any profits from municipal coverage already written.

Bond insurers are paid a premium over time in exchange for guaranteeing to meet payments if a bond defaults.

(Reporting by Lilla Zuill, editing by Richard Chang and Andre Grenon)