FGIC has just passed its first year anniversary of opening its London office. Over the past year, the monoline insurer has achieved market acceptance across a spectrum of deals that range from private finance initiatives to CLOs and everything in between.
The group has a trading desk that provides credit default swaps and, as of the end of October, over $2.5 million notional amount of CLO-type transactions have been closed. FGIC estimates another five to six transactions are likely to happen before year-end. "It's a readily accepted product despite the fact that spreads are increasingly tight - investors are readily willing to buy," said Timothy Travers, senior managing director of the international and utilities division at FGIC. On the infrastructure side of the business, Travers said it's been an equally good year. FGIC has worked on a number of deals with another GBP500 million ($865 million) transaction waiting to close by 2005.
Travers attributes the accelerated growth to the fact that the first hires were steeped in the business. "The monolines that have been here in Europe have had to clear the forest - we have benefited from that and have quickly got up to speed," he said. "The people we hired were poached from MBIA and Ambac and we brought aboard some well-known bankers - it allows our clients to feel comfortable," he said. "That market acceptance has allowed us to trade on top of or through the other monoline names. It's all about credibility - here at FGIC we have been upfront about what we can and can't do."
In 1992, under the ownership of General Electric, FGIC became the first U.S. financial guarantor to obtain a license to write financial guaranty insurance in the U.K. "GE aggressively managed FGIC, we were quite innovative at the time...Eventually, GE shut down its international efforts but it coincided with the growth of monolines in Europe, which didn't really start to take off until the latter part of the 1990s and is only now just starting to penetrate with any meaning," Travers said.
It has been over two years since GE sold FGIC and Travers said that re-launching their European business at this stage in the game has been beneficial. He believes that the group is in a position to capitalize on the future growth. "We can actually grow our business based on asset class expansion and geographical expansion," Travers added.
Travers said that, going forward, FGIC will likely concentrate on the more established asset classes. The group has already dabbled in some emerging market future flow business and plans to pursue new prospects emerging from Central Europe. Toward the latter part of next year and early 2007, they plan to enter this relatively virgin territory and eventually move out of future flow structures and into the cash business side of the Eastern and Central European markets.
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