Today, Assured Guaranty announced that it has reached a definitive agreement with Dexia SA to purchase Financial Security Assurance Holdings Ltd. (“FSA”), the parent of financial guaranty insurance company, Financial Security Assurance, Inc. Assured Guaranty emphasized that it will be fully protected against exposure to FSA’s Financial Products segment.

Assured Guaranty will pay $722 million, split equally between cash and stock, consisting of $361 million in cash and 44,567,000 common shares of Assured Guaranty’s stock. As a part of the transaction, Assured Guaranty will be assuming $730 million of FSA’s outstanding debt. Assured Guarantee expects to “finance the cash portion of the acquisition with the proceeds of a public equity offering… [and] has received a back-up commitment from funds affiliated with WL Ross & Co. LLC to fund the cash portion of the purchase price with the purchase of newly issued common shares.” In addition to customary approvals, the transaction closing is contingent on confirmation from Standard & Poor’s, Moody’s Investors Services and Fitch Ratings [(currently AAA (stable), Aaa (under review), and AAA (stable), respectively)] that the acquisition of FSA would not have a negative impact on Assured [Guaranty]’s or FSA’s financial strength ratings.” In the event the transaction results in a ratings downgrade or negative watch for either company, Assured Guaranty has the option to back out of the deal, which is expected to close in the first quarter of 2009. Assured Guaranty confirmed that the two companies will remain separate entities post-acquisition, with an ultimate goal of one (FSA) focusing exclusively on municipal bonds and the other (Assured Guaranty) focusing on established, transparent structured products. Assured Guaranty confirmed in a webcast conference today that it would not modify either company’s current portfolios, in the interest of current investors.

Dexia SA confirmed the agreement and announced a third quarter loss of €1.54 billion. Dexia SA also stated it is containing its exposure to FSA’s Financial Products activity through a Belgian and French government guarantee and appointing a new management team which has been reduced to five positions from ten. The government guarantee requires Dexia SA to cover the first loss of $3.1 billion above the $1.4 billion of existing reserves as of September 30, 2008. Citing the global financial crisis, Dexia SA has decided to refocus “on core client franchise[s] in Public, Retail & Commercial banking in core markets and selected geographies.”

Dexia SA previously received government aid from Belgium, France, and Luxembourg totaling €6.4 billion and swapped its 49% interest in Austria's Kommunalkredit in exchange for Kommunalkredit's 49% interest in Dexia Kommunalkredit Bank.