UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
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Commission file number 0-19564
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FGIC Securities Purchase, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3633082
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
115 Broadway, New York, New York 10006 (212) 312-3000
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including
area code)
------------------
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
Title of each class
--------------------
Common Stock, par value $10.00 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
---
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at _________, 1999. None.
At March 23, 1999, 10 shares of common stock with a par value of $10.00
per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2 Properties 1
Item 3. Legal Proceedings 1
Item 4. Submission of Matters to a Vote of Security Holders 1
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 2
Item 6. Selected Financial Data 2
Item 7. Management's Discussion and Analysis of Results
of Operations 2
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 15
Signatures 16
<PAGE>
PART I
Item 1. Business.
FGIC Securities Purchase, Inc. ("FGIC-SPI") was incorporated in
1990 in the State of Delaware. As of December 31, 1998, all
outstanding capital stock of FGIC-SPI was owned by FGIC Holdings,
Inc., a Delaware corporation, a wholly-owned subsidiary of
General Electric Capital Corporation ("GE Capital"), a New York
corporation, the ultimate parent of which is General Electric
Company.
The business of FGIC-SPI consists of providing liquidity for
certain floating rate municipal securities through a "liquidity
facility". These floating rate municipal securities are typically
remarketed by registered broker-dealers at par on a periodic
basis to establish the applicable interest rate for the next
interest period and to provide a secondary market liquidity
mechanism for security holders desiring to sell their securities.
In the event that such securities cannot be remarketed, FGIC-SPI,
pursuant to a standby purchase agreement with the issuer of the
securities, will be obligated to purchase unremarketed
securities, at par, from the holders thereof who desire to
remarket their securities. In order to obtain funds to purchase
the securities, FGIC-SPI has entered into standby loan
agreements, with GE Capital, under which GE Capital will be
irrevocably obligated to lend funds as needed for FGIC-SPI to
purchase the securities.
Item 2. Properties.
FGIC-SPI conducts its business from the facilities of Financial
Guaranty Insurance Company, a wholly-owned subsidiary of FGIC
Corporation.
Item 3. Legal Proceedings.
FGIC-SPI is not involved in any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
As of December 31, 1992, all of FGIC-SPI's common stock, its
sole class of common equity, was owned by FGIC Corporation. In
January 1993, the common stock of FGIC-SPI was dividended to GE
Capital. GE Capital, in turn, made a capital contribution of the
common stock of FGIC-SPI to FGIC Holdings, Inc., which now owns
100% of the common stock of FGIC-SPI. Accordingly, there is no
public trading market for FGIC-SPI's common stock.
Item 6. Selected Financial Data.
Omitted.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
FGIC-SPI commenced operations in March 1992. Fees are paid
up-front and in installments. Up-front fees are earned on a
straight-line basis over the life of the liquidity commitment,
and installment fees are earned straight-line over the
installment period.
For the years ended December 31, 1998 and 1997, fees earned
totaled $7,165,522 and $9,283,899 respectively. The decrease in
earnings is primarily due to a reduction in the liquidity
facility utilized during 1998. FGIC-SPI also incurred $602,052
and $678,169 in expenses for the years ended December 31, 1998
and 1997, respectively. Expenses decreased $76,117 or 11% from
1997 to 1998 primarily as a result of a decrease in the number
and value of the transactions for which FGIC SPI provided a
liquidity facility.
For the years ended December 31, 1997 and 1996, fees earned
totaled $9,283,899 and $11,785,585 respectively. The decrease in
earnings is primarily due to a reduction in the liquidity
facility utilized during 1997. FGIC-SPI also incurred $678,169
and $459,685 in expenses for the years ended December 31, 1997
and 1996 respectively. Expenses increased $218,484 or 48% from
1996 to 1997 primarily as a result of increased sales efforts.
During 1998, three deals closed totaling $298.6 million of
liquidity facility. During 1997, two deals closed totaling $96.4
million of liquidity facility. During 1996, four deals closed
totaling $75.4 million of liquidity facility.
Restatements
On December 28, 1998, FGIC-SPI determined that certain
adjustments should be made to FGIC-SPI's previously issued
financial statements for the quarters ended June 30, 1998 and
September 30, 1998, to reflect a change in the accounting
treatment with respect to stand-by loan commitment fees waived
by GE Capital.
<PAGE>
FGIC-SPI initially recorded such fees as general and
administrative expenses in years 1994 through 1997. In May of
1998, GE Capital waived all such fees previously accrued through
December 31, 1997. FGIC-SPI initially recorded the waiving of
such fees as a reduction of general and administrative expenses.
Upon subsequent review, FGIC-SPI determined that the waiving of
such fees should have been recorded as additional
paid-in-capital.
The effect of this accounting change resulted in FGIC-SPI
increasing expenses by $250,000 and $500,000, respectively, and
reducing reported earnings by $150,312 and $300,624,
respectively, for the three and nine month periods ended
September 30, 1998. Additionally, as a result of this accounting
change, at September 30, 1998, deferred tax asset, commitment
fees payable to GE Capital, taxes payable, and retained earnings
were reduced by $13,125, $322,145, $212,500, and $300,624,
respectively, and additional paid-in-capital was increased by
$822,145.
The effect of this accounting change resulted in FGIC-SPI
increasing expenses by $250,000 and reducing reported earnings by
$150,312 for both the three and six month periods ended June 30,
1998. Additionally, as a result of this accounting change, at
June 30, 1998, deferred tax asset, commitment fees payable to GE
Capital, taxes payable, and retained earnings were reduced by
$6,563, $572,145, $106,251, and $150,312, respectively, and
additional paid-in-capital was increased by $822,145.
Year 2000
The inability of business processes to continue to function
correctly after the beginning of the Year 2000 could have
serious adverse effects on companies and entities throughout the
world. FGIC recognizes the seriousness of the Year 2000 issue
and has developed an action plan to mitigate Year 2000 issues in
their information systems, products, facilities and suppliers.
The action plan has been reviewed by senior management at
FGIC-SPI and GE Capital Services internal audit staff. Our
progress is closely monitored by GE Capital's Year 2000 Program
Management Office.
The action plan is divided into four phases: (1) define/measure
- identify and inventory possible sources of Year 2000 issues;
(2) analyze - determine the nature and extent of Year 2000
issues and develop project plans to address those issues; (3)
improve - execute project plans and perform a majority of the
testing; and (4) control - complete testing, continue monitoring
readiness and complete necessary contingency plans.
The action plan includes solutions which are appropriate to the
specific situations. Some systems have been upgraded to new
systems (or to new releases of existing systems) which are Year
2000 ready. Remediation of FGIC's applications is complete. Year
2000 system testing is currently in progress; we expect to be
completed mid-1999. The cost of addressing such matters will not
have a material impact on the business, operations, or financial
condition of FGIC-SPI.
Business operations are also dependent on the Year 2000
readiness of infrastructure suppliers in areas such as
utilities, communications, transportation and other services.
The likelihood and effects of failures in infrastructure systems
and in the supply chain cannot be estimated. However, with
respect to operations under its direct control, management does
not expect, in view of its Year 2000 action plan, that
occurrences of Year 2000 failures will have a material adverse
effect on the financial position, results of operations or
liquidity.
<PAGE>
We are in the process of updating our Business Contingency and
Disaster Recovery Plans, as appropriate. We expect these plans
to be completed and tested by mid-1999.
The foregoing is Year 2000 Readiness Disclosure subject to the
Year 2000 Information and Readiness Disclosure Act, entitled to
the protections of said Act.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder
FGIC Securities Purchase, Inc.
We have audited the accompanying balance sheets of FGIC Securities Purchase,
Inc. as of December 31, 1998 and 1997, and the related statements of income,
changes in stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of FGIC Securities Purchase, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
/s/ [KPMG LLP]
- -------------------
[KPMG LLP]
January 22, 1999
New York, New York
<PAGE>
Item 8. Financial Statements and Supplementary Data.
FGIC Securities Purchase, Inc.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS December 31, December 31,
1998 1997
----------------- ----------------
<S> <C> <C>
Short-term investments $126,285 $ 117,390
Liquidity fees receivable 1,117,220 1,278,386
Due from GE Capital 20,595,753 18,408,928
Deferred tax asset 2,136,958 1,964,434
Other assets 353,109 456,074
------------- ------------
Total assets $24,329,325 $22,225,212
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $306,300 $ 211,178
Due to affiliates - 140,980
Commitment fees payable to GE Capital 161,342 822,145
Accounts payable and accrued expenses 346,760 283,259
Taxes payable 6,061,034 8,087,541
----------- ----------
Total liabilities 6,875,436 9,545,103
----------- ----------
Stockholder's Equity:
Common stock, par value $10.00 per share;
10 shares authorized, issued and outstanding 100 100
Additional paid in capital 822,145 -
Retained earnings 16,631,644 12,680,009
------------ ----------
Total stockholder's equity 17,453,889 12,680,109
------------ ----------
Total liabilities and stockholder's equity $24,329,325 $22,225,212
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FGIC Securities Purchase, Inc.
Statements of Income
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Liquidity fee income $7,165,522 $9,283,899 $11,785,585
Investment income 8,895 8,113 1,414
----------- -------------- -------------
Total revenues 7,174,417 9,292,012 11,786,999
General and administrative expenses 440,710 499,765 280,673
GE Capital commitment fees 161,342 178,404 179,012
---------- ------------ --------------
Total expenses 602,052 678,169 459,685
---------- ------------ --------------
Income before provision for
income taxes 6,572,365 8,613,843 11,327,314
Income tax expense (benefit):
Federal
Current 2,300,328 3,375,738 3,730,193
Deferred (172,525) (587,006) (62,654)
State and local 492,927 646,038 849,549
----------- ----------- -------------
Total income tax expense 2,620,730 3,434,770 4,517,088
---------- ---------- ------------
Net income $3,951,635 $5,179,073 $6,810,226
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FGIC Securities Purchase, Inc.
Statements of Changes in Stockholder's Equity
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Common Additional Paid Retained
Stock In Capital Earnings Total
------- ------------------ --------- -----
<S> <C> <C> <C>
Balance, January 1, 1996 $100 - $2,690,710 $ 2,690,810
Net Income - - 6,810,226 6,810,266
Dividends paid - - (2,000,000) (2,000,000)
----- ----------- ------------
Balance, December 31, 1996 100 - 7,500,936 7,501,036
Net Income - - 5,179,073 5,179,073
----- ----------- ---------- ------------
Balance December 31, 1997 100 - 12,680,009 12,680,109
Net Income - - 3,951,635 3,951,635
Capital contribution - 822,145 - 822,145
------ -------- ----------- -------------
Balance, December 31, 1998 $100 $822,145 $16,631,644 $17,453,889
==== ======== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FGIC Securities Purchase, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $3,951,635 $5,179,073 $ 6,810,226
Adjustments to reconcile net
income to net cash
provided by operating activities:
Change in taxes payable (2,026,506) (6,869) (5,365,431)
Change in due from affiliates (2,186,824) (5,124,620) (727,847)
Change in due to affiliates (140,980) 140,980 (31,069)
Change in liquidity fees
receivable 161,166 627,552 1,022,679
Change in deferred tax asset (172,524) (587,007) (62,654)
Change in deferred liquidity
fee income 95,122 (136,045) (6,125)
Change in other assets 102,965 (133,995) 1,600
Change in accounts payable and
accrued expenses 63,501 (129,360) 181,023
Change in commitment fees
payable to GE Capital 161,340 178,404 179,012
-------- ------------- -------------
Cash provided by (used in) operating
activities 8,895 8,113 (2,001,414)
--------- ------------- ---------------
Financing activities:
Dividends paid - - (2,000,000)
----------- -------------- -----------
Cash used in financing
activities - - (2,000,000)
----------- -------------- -----------
Net change in cash and cash
equivalents 8,895 8,113 1,414
Cash and cash equivalents at
beginning of period 117,390 109,277 107,863
-------- ------------ -----------
Cash and cash equivalents at
end of period $126,285 $ 117,390 $ 109,277
======== =========== ===========
Supplemental schedule of non-cash investing
and financing activities:
Waived commitment fees payable to
GE Capital $822,145 - -
======== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FGIC Securities Purchase, Inc.
Notes to Financial Statements
December 31, 1998
(1) Business
---------
FGIC Securities Purchase, Inc. ("FGIC-SPI") is a wholly-owned
subsidiary of FGIC Holdings, Inc. (the "Parent") which, in turn, is
wholly-owned by General Electric Capital Corporation ("GE Capital").
FGIC-SPI was capitalized on September 24, 1991. FGIC-SPI was formed to
provide liquidity for certain floating rate municipal securities
whereby FGIC-SPI will, under certain circumstances, purchase such
securities in the event they are tendered by the holders thereof as
permitted under the terms of the respective bond indentures. As of
December 31, 1998, FGIC-SPI had approximately $2.6 billion par and
interest of potential obligations under such arrangements. In order to
obtain funds, in the event such purchases are necessary, FGIC-SPI has
entered into standby loan agreements, with GE Capital, under which GE
Capital will be irrevocably obligated to lend funds as needed for
FGIC-SPI to purchase the securities.
(2) Restatements
------------
On December 28, 1998, FGIC-SPI determined that certain adjustments
should be made to FGIC-SPI's previously issued financial statements for
the quarters ended June 30, 1998 and September 30, 1998, to reflect a
change in the accounting treatment with respect to stand-by loan
commitment fees waived by GE Capital.
FGIC-SPI initially recorded such fees as general and administrative
expenses in years 1994 through 1997. In May of 1998, GE Capital waived
all such fees previously accrued through December 31, 1997. FGIC-SPI
initially recorded the waiving of such fees as a reduction of general
and administrative expenses.
Upon subsequent review, FGIC-SPI determined that the waiving of such
fees should have been recorded as additional paid-in-capital.
The effect of this accounting change resulted in FGIC-SPI increasing
expenses by $250,000 and $500,000, respectively, and reducing reported
earnings by $150,312 and $300,624, respectively, for the three and nine
month periods ended September 30, 1998. Additionally, as a result of
this accounting change, at September 30, 1998, deferred tax asset,
commitment fees payable to GE Capital, taxes payable, and retained
earnings were reduced by $13,125, $322,145, $212,500, and $300,624,
respectively, and additional paid-in-capital was increased by $822,145.
The effect of this accounting change resulted in FGIC-SPI increasing
expenses by $250,000 and reducing reported earnings by $150,312 for
both the three and six month periods ended June 30, 1998. Additionally,
as a result of this accounting change, at June 30, 1998, deferred tax
asset, commitment fees payable to GE Capital, taxes payable, and
retained earnings were reduced by $6,563, $572,145, $106,251, and
$150,312, respectively, and additional paid-in-capital was increased by
$822,145.
(3) Significant Accounting Policies
-------------------------------
The accompanying financial statements have been prepared on the basis
of generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
<PAGE>
Revenue Recognition
Fees are paid up-front and in installments. Up-front fees are earned on
a straight-line basis over the life of the liquidity commitment,
usually five years, and installment fees are earned straight-line over
the installment period.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost, which approximates fair
value. For purposes of the statement of cash flows, FGIC-SPI considers
all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of FGIC-SPI's financial instruments, relating
primarily to short-term investments and liquidity fees, approximate
their fair values.
SEC Registration Fees
SEC registrations fees are reimbursable to FGIC-SPI, as a separate item
at the closing, by issuers as transactions are consummated. Such fees
are deferred when paid and netted against the related reimbursement as
transactions are consummated. Management evaluates the recoverability
of such deferred fees at each reporting date.
Expenses
Direct expenses incurred by the Parent are fully allocated to FGIC-SPI
on a specific identification basis. Employee related expenses are
allocated by affiliates to FGIC-SPI based on the percentage of time
such employees devote to the activities of FGIC-SPI. Management
believes that such allocation method is reasonable. Management believes
that such expenses, as reported in the statement of income, would not
differ materially from what expenses would have been on a stand-alone
basis.
Reserve for Losses
It is management's policy to establish a reserve for losses based upon
its estimate of the ultimate aggregate losses relative to its
obligations under the liquidity facility arrangements written. At
December 31, 1998, management does not anticipate any losses relative
to such arrangements.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, on a stand alone basis, as provided in SFAs No.
109, "Accounting for Income Taxes". These temporary differences relate
principally to accrued state taxes not settled with GE Capital.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(4) Income Taxes
Under an intercompany tax-sharing agreement with its parent, FGIC-SPI
is included in the consolidated Federal income tax returns filed by GE
Capital. FGIC-SPI provides for taxes as if it filed a separate tax
return.
<PAGE>
FGIC-SPI's effective Federal tax rate differs from the corporate tax
rate on ordinary income of 35 percent in 1998, 1997 and 1996. The
differences between the statutory Federal tax rate and expense computed
by applying the statutory tax rate to earnings before income taxes are
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Computed Statutory
tax provision $2,300,328 $3,014,845 $3,964,559
State and local
income taxes, net
of Federal income
tax benefit 320,402 419,925 552,207
Other - - 322
--------------- -------------- ------------
Income tax expense $2,620,730 $3,434,770 $4,517,088
========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
State taxes 1,927,337 $1,754,812
Commitment fees 287,912 287,912
---------- -----------
Total gross deferred tax assets 2,215,249 2,042,724
Deferred tax liabilities - other 78,291 78,290
----------- ------------
Net deferred tax asset $2,136,958 $1,964,434
========== ==========
</TABLE>
To the extent that the state and local income tax liability provided
for by FGIC-SPI has exceeded the overall consolidated state and local
income tax liability of GE Capital, such liability has not been settled
(in accordance with the tax-sharing agreement) and remains a current
liability of FGIC-SPI. Given that such state and local taxes will not
be paid until some future period, the related federal income tax
benefit is considered a deferred item. FGIC-SPI believes it is more
likely than not that it will realize the benefits of these deductible
differences and has not established a valuation allowance at December
31, 1998 and 1997.
For the years ended December 31, 1998, 1997, and 1996, federal income
taxes paid totaled $4,819,761, $4,028,646 and $9,945,174, respectively.
(5) Related Party Transactions
--------------------------
All municipal securities for which FGIC-SPI provides liquidity are
insured by Financial Guaranty Insurance Company, a subsidiary of the
Parent.
As part of a standby loan agreement with GE Capital (see Note 7),
FGIC-SPI has incurred commitment fees for the years ended December 31,
1998, 1997 and 1996 of $161,342, $178,404, and $179,012, respectively.
<PAGE>
At December 31, 1998 and 1997, $20,595,753 and $18,408,928,
respectively, of the amount classified as due from GE Capital relates
to cash balances held by GE Capital. FGIC-SPI has access to these funds
on an as needed basis.
All amounts due from affiliates and due to affiliates are non-interest
bearing.
(6) Off-Balance-Sheet Risk
----------------------
FGIC-SPI provides liquidity for certain floating rate municipal
securities whereby FGIC-SPI will, under certain circumstances, purchase
such securities at par in the event they are tendered by the holders
thereof as permitted under the terms of the respective bond indentures.
The geographical distribution of the underlying par value supported by
the thirty eight liquidity facilities outstanding at December 31, 1998
was as follows (dollars in millions):
New York $ $1,225.8
California 309.5
Pennsylvania 249.8
Connecticut 249.2
Massachusetts 201.3
Florida 135.1
Ohio 114.3
Louisiana 56.1
Texas 24.9
Oklahoma 21.4
Michigan 8.0
---------------
Total $ 2,595.4
===============
The maturity distribution of the underlying par value supported by the
thirty eight liquidity facilities outstanding at December 31, 1998 was
as follows (dollars in millions):
Less than one year $ 56.1
One to two years -
Two to three years 389.3
Three to four years 1,230.3
Four to five years 742.3
Over five years 177.4
---------------
Total $ 2,595.4
-==============
The liquidity agreements are for a term of approximately five years
(subject to renewal) or earlier if the bonds are no longer outstanding.
As of December 31, 1998, the fair value of the uncollected balances on
outstanding facilities was $23.5 million. The fair value was calculated
based upon current expected cash inflows, assuming current outstanding
facilities at current fee rates, discounted at the risk free rate of
5.1%.
FGIC-SPI is exposed to credit risk that the issuer defaults on the
underlying municipal security at a time that FGIC-SPI is holding
securities purchased pursuant to a liquidity facility and the financial
guarantor fails to perform on its insurance contract. It is the
accounting policy of FGIC-SPI to evaluate the likelihood of any credit
loss at each reporting period and to establish reserves for credit
losses when deemed appropriate. Management believes that no such
reserves were required at December 31, 1998 and 1997.
<PAGE>
FGIC-SPI is exposed to market risk in the event that FGIC-SPI is
required to purchase municipal securities at their par amount at a time
when such par value is in excess of the securities' fair value. It is
the accounting policy of FGIC-SPI to evaluate the likelihood of it
being called upon to purchase securities under its liquidity
arrangements at amounts greater than their fair value at each reporting
period and to establish valuation reserves when deemed appropriate.
Management believes that no such valuation reserves were required at
December 31, 1998 and 1997.
(7) Standby Loan Agreements
------------------------
FGIC-SPI secured the right to obtain funds for the purchase of tendered
bonds by entering into standby loan agreements with GE Capital who will
lend funds to FGIC-SPI in amounts not exceeding the purchase price of
the tendered bonds. Such agreements totaled $4.0 billion at December
31, 1998.
In consideration of the commitment of GE Capital to make loans to
FGIC-SPI, FGIC-SPI agrees to pay GE Capital a fee equal to 0.625 basis
points on the outstanding facility. The fee is payable on dates
mutually agreed to by FGIC-SPI and GE Capital.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE
Part III
Item 10. Directors and Executive Officers of the Registrant.
Omitted.
Item 11. Executive Compensation.
Omitted.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted.
Item 13. Certain Relationships and Related Transactions.
Omitted.
PART IV
Item 14. Exhibits and Financial Statement Schedules.
(a) Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets as of December 31, 1998 and 1997
Statements of Income for the years ended
December 31, 1998, 1997 and 1996.
Statements of Changes in Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
Notes to Financial Statements
All Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(b) Exhibit Index
Exhibit
- -------
1.1 --Certificate of Incorporation of FGIC-SPI
(Incorporated by reference to Exhibit 1.1 of
FGIC-SPI's December 31, 1991 Form 10K)
1.2 -- By-Laws of FGIC-SPI
(Incorporated by reference to Exhibit 1.2 of
FGIC-SPI's December 31, 1991 Form 10K)
1.3 -- Consents of Independent Auditors
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Ann C. Stern President (principal March 23, 1999
- ------------------------------------------ --------------
Ann C. Stern executive officer),
Director
/s/Rick J. Filippelli Treasurer, Director March 23, 1999
- ------------------------------------------ --------------------
Rick J. Filippelli
/s/Amedeo Edward Turi, III Director March 23, 1999
- ------------------------------------------ --------------
Amedeo Edward Turi, III
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
______________________ President (principal -----------
Ann C. Stern executive officer),
Director
_______________________
Rick J. Filippelli Treasurer, Director ------------
________________________ Director -------------
Amedeo Edward Turi, III
Exhibit 1.3
Consent of Independent Auditors
The Board of Directors and Stockholder
FGIC Securities Purchase, Inc.
We consent to incorporation by reference in the registration statement (No.
33-43066) on Form S-3 of FGIC Securities Purchase, Inc. of our report dated
January 22, 1999, relating to the balance sheets of FGIC Securities Purchase,
Inc. of December 31, 1998 and 1997, and the related statements of income,
changes in stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, which report appears in the December
31, 1998 annual report on Form 10-K of FGIC Securities Purchase, Inc.
KPMG LLP
/s/ [KPMG LLP]
- ----------------
[KPMG LLP]
New York, New York
March 26, 1999
