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Big Names Backing Bond-Insurance Venture
Asset Backed Alert, Harrison Scott Publications Inc. (June 6, 2003)

An all-star cast of securitization specialists is developing a venture that would sell a unique form of triple-A guarantee to holders of asset-backed and municipal bonds.

The Stamford, Conn., company - whose officers include Andrew Jones, Leon Karvelis Jr. and Bernard L. Smith Jr. - is close to wrapping up a private-equity offering totaling several hundred million dollars.

The buzz is that MBS legend Lewis S. Ranieri is directing clients from various investment vehicles he runs to contribute cash to the venture, called Secured Guaranty Corp.

Capital Market Investment, a New York financial-services boutique, is handling the solicitation.

Secured Guaranty's business plan calls for it to sell guarantees to holders of bonds that are already wrapped by one of the big monoline players, like Ambac, MBIA or FSA, according to participants in the bond-insurance market. The firm's product, called Recap, would involve a promise by Secured Guaranty to step in if the primary guarantor is downgraded or refuses to honor its commitment on a collateralized debt obligation or an asset-backed, mortgage-backed or municipal bond.

In addition to the guarantee's function as a safety net for investors, it's likely that Secured Guaranty is pitching its unusual wrap as a means for buysiders to reduce their exposures to specific bond insurers. The product could win over a large amount of business in a short period of time, if bonds with Recap guarantees start trading at narrower spreads than securities with only one wrap.

Secured Guaranty may also deal directly with bond insurers, especially in cases where the second wrap would allow the insurers to write policies for issuers to which they are already heavily exposed.

For Secured Guaranty, the fact that it would only cover bonds with existing guarantees would translate into a reduced need for reserve capital.

Rumor has it that New York recruiting operation Saxon Group has been hired to find more than 20 staffers for the business. The firm declined to comment.

Jones is best known as the founder of Duff's mortgage-backed team. He left the rating agency, where he also evaluated bond insurers, after it was purchased by Fitch in 2000. Later that year, he started a business called that planned to pool and securitize trade receivables. However, Credit2b was shut down in February when Radian Group bought the outfit's parent, Enhance Financial, and quickly concluded that the operation would never turn a profit. Most recently, Jones was a managing director at Finacity, another trade-finance shop.

Karvelis' resume includes numerous senior-management positions at MBIA, where he worked from 1982 to 1997. After that, he joined American Capital Access as an executive vice president in the corporate-development area. He left ACA in early 2001, around the time when a new management team ousted chief executive H. Russell Fraser.

Smith was an executive vice president at Enhance from 1991 to 1996. Since then, he has worked as a consultant to ACA.

Charles T. Bartholomae has signed on as chief financial officer of Secured Guaranty.

Karvelis and Smith had been developing the business plan for a similar insurance product for years, and even came close to launching the venture with Fraser, while they still worked at ACA in the late 1990s. At the time, the group acted under the name WCA Holdings. Fraser is no longer involved.

Ranieri is one of the most recognized names in securitization. He was one of the founding fathers of the MBS market during his days at the former Salomon Brothers in the 1980s. A few months ago, he launched Five Mile Capital, a structured-products investment shop in Stamford.



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