Financial Security Assurance (FSA) is projecting $51.5 million in losses, net of reinsurance, due to insuring the triple-A tranches on seven 1998/1999 vintage arbitrage cashflow high yield CBOs. The monoline is taking a step back from wrapping CDOs to evaluate its criteria and its existing portfolio, but will likely be back in the CDO market in the fall, said sources familiar with the situation.

FSA recently remodeled its $74 billion par amount of CDO exposure and came up with the $51 million estimated loss figure that resulted in a $31 million expense to build up general reserves for estimated losses. Further, FSA took a $16 million charge to recognize a market value decline in a single-name credit default swap transaction where the surety had taken the first loss position in a pool of 100 corporate credits. The firm terminated the swap for a fee of $43 million. The swap is the only first loss position in the FSA's CDO portfolio.

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