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Run-off monoline sues Goldman over CDO of ABS
Friday, January 7, 2011
ACA Financial Guaranty has announced that it is suing Goldman Sachs for fraud over the Abacus 2007-AC1 CDO which triggered an SEC investigation and fine for the investment bank. The run-off monoline is seeking $110 million in compensation and damages from Goldman through an action in the New York state supreme court. ACA Financial Guaranty had exposure to the deal’s $909 million super senior tranche through a basis trade where ABN Amro held the bonds and bought protection from ACA for 50 basis points.
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CFlux secondary
CLO index levels:
| Index | 21 May |
|
| CFlux USD AAA | ↑ | 96.2 |
| CFlux USD AA | ↑ |
88.3 |
| CFlux USD A | ↓ | 84.1 |
| CFlux USD BBB | ↓ | 75.3 |
| CFlux USD BB | ↓ |
74.1 |
| CFlux USD EQ | ↑ | 77.5 |
ACA already had some of the work done for them and the residual value in these crashed monolines is really the litigation claims. It's all about monetizing the value right?
What's truly fascinating here is "who" is suing Goldman. When ACA crashed in 2008, the equity was distributed to the numerous large financial counterparties (CIBC, UBS, HSBC, to name just a few) who were ACA's derivative creditors. These FI's now constitute the ACA Board that has authorized this suit. Either these large and sophisticated institutions believe the case has merit or they wish to bloody Goldman or both.
For the commenter below and all other readers, here's the ACA complaint: http://online.wsj.com/public/resources/documents/GoldmanACA.pdf .
Hopefully Goldman will fight this one. ACA was perfectly informed on this structure and the exposures in it as the collateral advisor. I'd love to read ACA's complaint just for the amusement factor!