ACA Financial Guaranty Corp. has reportedly dethroned its chairman, former Fitch Chief Executive Officer H. Russell Fraser, and may greatly revamp its workforce in the next few months, sources familiar with the company said.

It is unclear what the future holds for Fraser, who helped found the financial guarantor in 1997. Sources said that last week a group of top officials at ACA, including its general counsel, led the charge to remove Fraser after a year in which the guarantor nearly was downgraded to junk status. Yet no one knew for certain at press time whether Fraser would leave the company or would move to another role within ACA. ACA did not returns calls for comment.

ACA is wholly owned by American Capital Access Holdings Inc. Its primary business is to provide financial guaranty insurance on financial obligations that are rated from A-minus to BB, as well as unrated deals that ACA determines to be of adequate quality. Standard & Poor's and Fitch currently give the company an A rating.

That rating had been in jeopardy for much of the last year, and the troubles ACA faced likely led to Fraser's ousting, sources said. The troubles began last March, when ACA lost a $75 million reinsurance agreement with ACE Capital Re Bermuda, thus reducing the amount of backup cash the guarantor had access to.

"We also determined that after having lost about $28 million from operations over the previous two years that [ACA's] capital was in danger of falling below state regulatory requirements," said David Litvak, a Fitch managing director who covers the guarantor. The situation reached a critical point last month, when both Fitch and S&P said they would substantially downgrade the guarantor. Fitch said it would kick ACA into junk status, and S&P threatened a downgrade to BB.

ACA was saved at the last minute by a $45 million capital infusion from investors including Banc of America Securities and Keystone Municipal Securities. ACA's attempt to return to fiscal health also forced the company to rethink its general strategy. It plans to now focus more on mortgage-backed and asset-backed securities, among other structured finance products, and will cut back substantially on its municipal bond insurance business, which critics said had poor growth prospects.

What that will mean is a substantial overhaul of ACA staff. "There's going to be major staff turnover," said one source familiar with the company. "They may lay off a good portion of their muni bond staff and go into different business lines." As for Fraser, sources said that his ouster may have simply been the result of a general desire for fresh blood at the helm. ACA named a new president and CEO last August, Michael Satz, who has received praise for turning the company around, and some observers speculated Satz could rise further in the company after Fraser's departure. Fraser and Satz had formerly worked together at another financial guarantor, AMBAC Assurance Corp., where Fraser was president and CEO and Satz was chief operating officer.

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