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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 033-80769
PROSPECTUS
[LOGO]
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
COMMON STOCK
($.01 PAR VALUE)
This Prospectus relates to shares of common stock, par value $.01 per share (the
"Common Stock"), of Financial Security Assurance Holdings Ltd., a New York
corporation ("FSA Holdings" and, together with its consolidated subsidiaries,
the "Company"), which may be offered and sold by Salomon Brothers Inc ("Salomon
Brothers"), in connection with market-making activities in the 7 5/8%
Exchangeable Notes due May 15, 1999 (the "Debt Exchangeable for Common
Stock-TM-" or "DECS-TM-") of Salomon Inc ("Salomon"). The DECS were initially
offered pursuant to a Prospectus Supplement and Prospectus (together, the "DECS
Prospectus") relating to the sale of DECS which is accompanied by a form of
Prospectus (the "DECS FSA Prospectus") relating to the delivery by Salomon
pursuant to the DECS of such shares of Common Stock as Salomon may receive from
U S WEST, Inc., a Delaware corporation ("U S WEST"), under the terms of certain
exchangeable notes of U S WEST (the "U S WEST DECS"). The DECS FSA Prospectus is
also included in the Registration Statement of which this Prospectus forms a
part. For additional information concerning the DECS or the U S WEST DECS, see
the DECS Prospectus.
Salomon Brothers may, subject to certain limitations, from time to time borrow
Common Stock from U S WEST to settle short sales of Common Stock entered into by
Salomon Brothers to hedge any long position in the DECS resulting from its
market-making activities. Such sales will be made on the New York Stock
Exchange, Inc. (the "NYSE") or in the over-the-counter market at market prices
prevailing at the time of sale or at prices related to such market prices.
Shares that have been returned to U S WEST may be reborrowed. The number of
shares borrowed at any time may not exceed 1,919,261. See "Plan of
Distribution." Salomon Brothers is not under any obligation to engage in any
market-making transactions with respect to the DECS, and any market-making in
the DECS actually engaged in by Salomon Brothers may cease at any time.
The Common Stock is listed for trading on the NYSE under the symbol "FSA". On
September 9, 1997, the last reported sale price of the Common Stock on the NYSE
Composite Tape was $42 7/8 per share. See "Price Range of Common Stock and
Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September 10, 1997.
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AVAILABLE INFORMATION
FSA Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by FSA Holdings may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Room 3190, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, material filed by FSA Holdings can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
FSA Holdings has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules filed as a part thereof, as permitted
by the rules and regulations of the Commission. For further information with
respect to FSA Holdings and the Common Stock, reference is hereby made to such
Registration Statement, including the exhibits and schedules filed as a part
thereof. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete and
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is hereby made for a full statement of the
provisions thereof. The Registration Statement, including the exhibits and
schedules filed as a part thereof, may be inspected without charge at the public
reference facilities maintained by the Commission as set forth in the preceding
paragraph. Copies of these documents may be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission (File No.
1-12644) are hereby incorporated by reference in this Prospectus:
1. FSA Holdings' Annual Report on Form 10-K for the year ended December 31,
1996;
2. FSA Holdings' Quarterly Report on Form 10-Q for the three months ended
March 31, 1997;
3. FSA Holdings' Quarterly Report on Form 10-Q for the six months ended
June 30, 1997;
4. The description of the Common Stock set forth in FSA Holdings'
Registration Statement on Form 8-A, declared effective on May 6, 1994, and any
amendment or report filed for the purpose of updating such description;
All documents filed by FSA Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing such
documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
FSA Holdings hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above other than exhibits to such documents. Requests for such copies should be
directed to the Secretary of FSA Holdings, Financial Security Assurance Holdings
Ltd., 350 Park Avenue, New York, New York 10022, telephone number (212)
826-0100.
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FSA Holdings' principal executive offices are located at 350 Park Avenue,
New York, New York 10022, telephone number (212) 826-0100.
"Debt Exchangeable for Common Stock" and "DECS" are service marks of Salomon
Brothers Inc.
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THE COMPANY
The Company, through its wholly owned subsidiary, Financial Security
Assurance Inc. ("FSA"), is primarily engaged in the business of providing
financial guaranty insurance on asset-backed securities and municipal bonds. FSA
was the first insurance company organized to insure asset-backed obligations and
has been a leading insurer of asset-backed obligations (based on number of
transactions insured) since its inception in 1985. FSA expanded the focus of its
business in 1990 to include financial guaranty insurance of municipal
obligations. For the six months ended June 30, 1997, FSA had gross premiums
written of $132.1 million, of which 49% related to insurance of asset-backed
obligations and 51% related to insurance of municipal obligations. At June 30,
1997, FSA had net insurance in force of $102.5 billion, of which 69% represented
insurance of municipal obligations and 31% represented insurance of asset-backed
obligations.
Financial guaranty insurance written by FSA typically guarantees scheduled
payments on an issuer's obligations. In the case of a payment default on an
insured obligation, FSA is generally required to pay the principal, interest or
other amounts due in accordance with the obligations' original payment schedule
or, at its option, to pay such amounts on an accelerated basis. FSA's
underwriting policy is to insure asset-backed and municipal obligations that
would otherwise be investment grade without the benefit of FSA's insurance. The
asset-backed obligations insured by FSA are generally issued in structured
transactions backed by pools of assets such as residential mortgage loans,
consumer or trade receivables, securities or other assets having an
ascertainable cash flow or market value. The municipal obligations insured by
FSA consist primarily of general obligation bonds supported by the issuers'
taxing power and special revenue bonds and other special obligations of state
and legal governments supported by the issuers' ability to impose and collect
fees and charges for public services or specific projects.
The Company's business objective is to remain a leading insurer of
asset-backed obligations and to become a more prominent insurer of municipal
obligations. The Company's acquisitions of Capital Guaranty Corporation
("Capital Guaranty") in December 1995 increased the Company's presence in the
insured municipal bond sector. The Company believes that the demand for its
financial guaranty insurance will grow over the long term in response to
anticipated growth in insured asset-backed and municipal obligations. The
Company expects continued growth in the insurance of asset-backed obligations,
due in part to the continued expansion of asset securitization outside of the
residential mortgage sector. In the long term, the Company also expects
continued growth in the insurance of municipal obligations, due in part to
increased issuance of municipal bonds to finance repairs and improvements to the
nation's infrastructure and increased municipal bond purchases by individuals
who generally purchase insured obligations. In addition the percentage of new
domestic municipal bond volume which is insured has increased each year since
1986, to 46% for the year ending 1996 according to published sources. The
company maintains offices in New York City, San Francisco, Dallas, London,
Paris, Madrid and Sydney, and expects soon to open an office in Singapore. In
addition to its domestic business, the Company pursues international
opportunities and currently operates in the European and Pacific Rim markets.
The Company was the first financial guaranty insurance company to insure
obligations in international markets.
The Company expects to continue to emphasize a diversified insured portfolio
characterized by insurance of both asset-backed and municipal obligations, with
a broad geographic distribution and a variety of revenue sources and transaction
structures.
The claims-paying ability of FSA is rated "Aaa" by Moody's Investors
Service, Inc. and "AAA" by Standard & Poor's Ratings Services ("S&P"), Fitch
Investors Service, L.P., Nippon Investors Services and S&P (Australia) Pty. Ltd.
FSA is licensed to engage in the financial guaranty insurance business in
all 50 states, the District of Columbia and Puerto Rico.
The principal executive offices of the Company are located at 350 Park
Avenue, New York, New York 10022. The telephone number at that location is (212)
826-0100.
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RISK FACTORS
ADEQUACY OF LOSS RESERVES
Like other financial guaranty insurers, FSA does not consider traditional
actuarial approaches used in the property/casualty insurance industry to be
applicable to the determination of its loss reserves because of the absence of a
sufficient number of losses in its financial guaranty insurance activities and
in the financial guaranty industry generally to establish a meaningful
statistical base. In the municipal area, a relatively small percentage of the
total amount of municipal obligations insured by the financial guaranty
insurance industry has experienced defaults in payment in recent years. There
can be no assurance, however, that these low default rates will be indicative of
future rates of default in insured municipal obligations. The statistical base
in the asset-backed area is even more limited than in the municipal area. In
addition, actual loss rates in the asset-backed area may over time prove to be
higher than in the municipal area. Although FSA currently maintains reserves in
an amount believed by its management to be sufficient to pay its estimated
ultimate liability for losses and loss adjustment expenses with respect to
obligations it has insured, there can be no assurance that losses in FSA's
insured portfolio will not exceed the loss reserves. Losses from future
defaults, depending on their magnitude, could have a material adverse effect on
the results of operations and financial condition of FSA Holdings.
CLAIMS-PAYING ABILITY RATINGS
As is customary in the financial guaranty insurance industry, the rating
agencies perform periodic assessments of the credits insured by a financial
guaranty insurer to confirm that such insurer continues to meet the requirements
of the rating agencies for a triple-A rating of the insurer's claims-paying
ability. Although FSA Holdings intends to continue to comply with the criteria
of the rating agencies, no assurance can be given that one or more of the rating
agencies will not reduce or withdraw its triple-A rating of the claims-paying
ability of FSA in the future. FSA's ability to compete with other triple-A rated
financial guarantors, and its results of operations and financial condition,
would be materially adversely affected by a reduction in its ratings.
MARKET AND OTHER FACTORS
The demand for financial guaranty insurance depends upon many factors, some
of which are beyond the control of FSA.
While all the major financial guaranty insurers have triple-A claims-paying
ability ratings from major rating agencies, the marketplace may from time to
time distinguish between financial guarantors on the basis of various factors,
including size, insured portfolio concentration and financial performance. These
distinctions may result in differentials in trading levels for securities
insured by particular financial guarantors which, in turn, may provide a
competitive advantage to those financial guarantors with better trading levels.
Conversely, various investors may lack additional capacity to purchase
securities insured by certain financial guarantors, which may provide a
competitive advantage to guarantors with fewer insured obligations outstanding.
Prevailing interest rate levels affect demand for financial guaranty
insurance to the extent that lower interest rates are accompanied by narrower
spreads between insured and uninsured obligations. The purchase of insurance
during periods of relatively narrower interest rate spreads will generally
provide lower cost savings to the issuer than during periods of relatively wider
spreads. These lower cost savings generally are accompanied by a corresponding
decrease in demand for financial guaranty insurance. However, relatively low
interest rate levels may encourage the issuance of new or the refunding of
existing debt securities by companies and municipalities, which may increase the
demand for financial guaranty insurance.
Credit quality concerns among investors, especially during times of weak
economic conditions, typically result in an increase in demand for financial
guaranty insurance. During such times, investors generally prefer to purchase
higher rated investments, including those that achieve higher ratings through
financial guaranty insurance.
The perceived financial strength of financial guaranty insurers also affects
demand for financial guaranty insurance. Should a major financial guaranty
insurer, or the industry generally, have its claims-paying
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ability rating lowered, or suffer for some other reason a deterioration in
investor confidence, demand for financial guaranty insurance would be adversely
affected.
In addition, the financial guaranty insurance industry has historically been
and will continue to be subject to the direct and indirect effects of
governmental regulation, including changes in tax laws affecting insurance on
asset-backed and municipal obligations. No assurance can be given that future
legislative or regulatory changes will not adversely affect FSA's business.
COMPETITION AND INDUSTRY CONCENTRATION
FSA faces competition from both other providers of third party credit
enhancement and alternatives to third party credit enhancement. The majority of
asset-backed and municipal obligations are sold without third party credit
enhancement. Accordingly, each transaction proposed to be insured by FSA must
generally compete against an alternative execution which does not employ third
party credit enhancement. FSA also faces competition from other monoline primary
financial guaranty insurers, primarily AMBAC Assurance Corporation, Capital
Markets Assurance Corporation, Connie Lee Insurance Company, Financial Guaranty
Insurance Company and MBIA Insurance Corp. Traditional credit enhancers such as
bank letter of credit providers and mortgage pool insurers also provide
significant competition to FSA as providers of credit enhancement for
asset-backed obligations. While actions by securities rating agencies in recent
years have significantly reduced the number of triple-A rated banks that can
offer a product directly competitive with FSA's triple-A guaranty, and recently
implemented risk-based capital guidelines applicable to banks have generally
increased costs associated with letters of credit that compete directly with
financial guaranty insurance, bank letter of credit providers and other credit
enhancement, such as cash collateral accounts, provided by banks, continue to
provide significant competition to FSA.
SUBSTANTIAL VOTING CONTROL
At June 30, 1997, voting control of FSA Holdings was held 30.9% by U S WEST
Capital Corporation ("USWCC") (a subsidiary of U S WEST), 22.3% by Fund American
Enterprises Holdings, Inc. ("Fund American") and 5.8% by the Tokio Marine and
Fire Insurance Company, Ltd. ("Tokio Marine") (together, the "Substantial
Shareholders"). Each of the Substantial Shareholders has the ability to
influence the policies and corporate actions of FSA Holdings. Shareholders of
FSA Holdings do not have cumulative voting rights with respect to the election
of directors and, accordingly, any shareholder or group of shareholders holding
shares representing in excess of 50% of the voting shares outstanding of FSA
Holdings would by itself have the power to elect the entire board of directors
of FSA Holdings.
HOLDING COMPANY STRUCTURE
The operations of FSA Holdings are conducted through FSA. Accordingly, FSA
Holdings' financial condition and results of operations are dependent upon FSA,
whose ability to declare and pay dividends to FSA Holdings is dependent upon
FSA's financial condition, results of operations, cash requirements and other
related factors and is also subject to restrictions contained in the insurance
laws and regulations of New York and other states.
SHARES ELIGIBLE FOR FUTURE SALE
At June 30, 1997, the three largest shareholders of FSA Holdings, USWCC,
Fund American and Tokio Marine, together owned approximately 56.4% of the Common
Stock outstanding. U S WEST has the right to cause the delivery of 9,546,303
shares of Common Stock owned by USWCC to Salomon pursuant to the terms of the U
S WEST DECS. All of the shares of Common Stock owned by USWCC, Fund American and
Tokio Marine will continue to be tradeable in the open market subject to the
volume limitations, manner of sale and notice requirements of Rule 144 under the
Securities Act or, without such requirements or limitations through the exercise
of registration rights available under agreements with FSA Holdings.
Sales of substantial amounts of Common Stock in the public or private
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of the Common Stock.
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IMPACT OF THE DECS ON THE MARKET FOR THE COMMON STOCK
It is not possible to predict accurately how or whether any market that
develops for the DECS will influence the market for the Common Stock. For
example, the price of the Common Stock could become more volatile and could be
depressed by investors' anticipation of the potential distribution into the
market of substantial additional amounts of Common Stock upon the maturity of
the DECS, by possible sales of Common Stock by investors who view the DECS as a
more attractive means of equity participation in FSA Holdings and by hedging or
arbitrage trading activity that may develop involving the DECS and the Common
Stock.
USE OF PROCEEDS
This Prospectus relates to the shares of Common Stock which Salomon Brothers
may, subject to certain limitations, from time to time, borrow from U S WEST to
settle short sales of Common Stock entered into by Salomon Brothers to hedge any
long position in the DECS resulting from market making activities. See "Plan of
Distribution." FSA Holdings will not receive any proceeds from the sale of the
Common Stock to which this Prospectus relates.
PLAN OF DISTRIBUTION
U S WEST (referred to herein as the "Lender"), and Salomon Brothers have
entered into a Securities Loan Agreement (the "Securities Loan Agreement") which
provides that, subject to certain restrictions and with the agreement of the
Lender, Salomon Brothers may from time to time borrow, return and reborrow
shares of Common Stock from the Lender or an affiliate thereof (the "Borrowed
Securities"); PROVIDED, HOWEVER, that the number of Borrowed Securities at any
time may not exceed 1,919,261 shares, subject to adjustment to provide
antidilution protection. The Securities Loan Agreement is intended to facilitate
market-making activity in the DECS by Salomon Brothers. Salomon Brothers may
from time to time borrow shares of Common Stock under the Securities Loan
Agreement to settle short sales of Common Stock entered into by Salomon Brothers
to hedge any long position in the DECS resulting from its market-making
activities. Such sales will be made on the NYSE or in the over-the-counter
market at market prices prevailing at the time of sale or at prices related to
such market prices.
Market conditions will dictate the extent and timing of Salomon Brothers'
market-making transactions in the DECS and the consequent need to borrow shares
of Common Stock (which may include borrowings to replace previously borrowed
shares). The availability of shares of Common Stock under the Securities Loan
Agreement, if any, at any time is not assured and any such availability does not
assure market-making activity with respect to the DECS and any market-making
actually engaged in by Salomon Brothers may cease at any time. The foregoing
description of the Securities Loan Agreement does not purport to be complete and
is qualified in its entirety by reference to the Agreement, a form of which is
filed as an exhibit to the Registration Statement of which the Prospectus is a
part.
The DECS were initially sold by Salomon to Salomon Brothers, Donaldson,
Lufkin & Jenrette Securities Corporation and Lehman Brothers, Inc. as
underwriters (the "Underwriters") subject to an underwriting agreement (the
"Underwriting Agreement") the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Underwriting
Agreement provides that Salomon and FSA Holdings will indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters intend to make a market in the DECS, subject to applicable
laws and regulations. However, the Underwriters are not obligated to do so and
any such market-making may be discontinued at any time at the sole discretion of
the Underwriters without notice. Accordingly, no assurance can be given as to
the liquidity of such market.
Pursuant to a Purchase Agreement between U S WEST and Salomon (the "Purchase
Agreement"), Salomon has purchased from U S WEST a number of U S WEST DECS equal
to the aggregate number of DECS purchased by the Underwriters from Salomon
pursuant to the Underwriting Agreement. Pursuant to the terms of the U S WEST
DECS, U S WEST will be obligated to deliver to Salomon at or prior to maturity
of
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the DECS a number of shares of Common Stock (or, at U S WEST's option under
certain circumstances, the cash equivalent) that are expected to have the same
value as the shares delivered pursuant to the DECS. For further information, see
the DECS Prospectus. Pursuant to the Purchase Agreement, U S WEST has agreed to
reimburse Salomon for certain expenses related to the offering of the DECS and
to pay a fee to Salomon equal to two-tenths of one percent per annum of the
principal amount of the DECS until their stated maturity.
In the ordinary course of business, Salomon Brothers has engaged in and may
in the future engage in investment banking transactions with Salomon, FSA
Holdings, U S WEST and their respective affiliates.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of the Company appearing or incorporated by reference in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports thereon dated January 24, 1997 incorporated by reference or
included therein and incorporated herein by reference. Such consolidated
financial statements and financial statement schedule are incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock being offered hereby has been passed upon
for FSA Holdings by Bruce E. Stern, Esq., General Counsel of FSA Holdings.
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NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FSA HOLDINGS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE FACTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
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PAGE
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Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 3
The Company.................................... 4
Risk Factors................................... 5
Use of Proceeds................................ 7
Plan of Distribution........................... 7
Experts........................................ 8
Legal Matters.................................. 8
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
COMMON STOCK
($.01 PAR VALUE)
[LOGO]
PROSPECTUS
SEPTEMBER 10, 1997
