<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-34181
Prospectus Supplement to Prospectus dated September 10, 1997.
[LOGO]
$100,000,000
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
6.950% Senior Quarterly Income Debt Securities due 2098
(Senior QUIDS-SM-)
------------------------
This is an offering of 6.950% Senior Quarterly Income Debt Securities (the
"Debt Securities") to be issued by Financial Security Assurance Holdings Ltd.
(the "Company"). The Debt Securities will mature on November 1, 2098. The
Company will pay interest on the Debt Securities on February 1, May 1, August 1
and November 1 of each year. The first such payment will be February 1, 1999.
The Company has the option to redeem the Debt Securities, without paying a
premium or penalty, (1) at any time on or after November 1, 2003, in whole or in
part, or (2) at any time within 90 days after the occurrence of certain tax
events, in whole but not in part. The Company will issue the Debt Securities
only in book-entry form in denominations of $25 and integral multiples of $25.
The Company intends to list the Debt Securities on the New York Stock
Exchange.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Unit Total
----------- -------------
<S> <C> <C>
Initial public offering price.................................. 100% $100,000,000
Underwriting discount.......................................... 3.15% $3,150,000
Proceeds, before expenses, to the Company...................... 96.85% $96,850,000
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Debt Securities will accrue from November 13,
1998 and must be paid by the purchaser if
the Debt Securities are delivered after November 13, 1998.
------------------------
The Underwriters are severally underwriting the Debt Securities being
offered. They expect to deliver the Debt Securities in book-entry form only
through the facilities of The Depository Trust Company in New York, New York on
November 13, 1998.
- ------------------------
QUIDS-SM- is a service mark of Goldman, Sach & Co.
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
------------------------
Prospectus Supplement dated November 6, 1998.
<PAGE>
THE COMPANY
Financial Security Assurance Holdings Ltd. (the "Company", which may be
referred to as "we" or "us"), through its wholly owned subsidiary, Financial
Security Assurance Inc. ("FSA"), primarily provides 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 nine
months ended September 30, 1998, FSA had gross premiums written of $220.6
million, of which 32.2% related to insurance of asset-backed obligations and
67.8% related to insurance of municipal obligations. At September 30, 1998, FSA
had net insurance in force of $147.2 billion, of which 71.4% represented
insurance of municipal obligations and 28.6% represented insurance of
asset-backed obligations.
FSA writes financial guaranty insurance that 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 either in accordance with the obligations'
original payment schedule or, at its option, on an accelerated basis. The
underwriting policy of FSA 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 local
governments, supported by the issuers' ability to impose and collect
fees and charges for public services or specific projects.
Our business objective is to remain a leading insurer of asset-backed
obligations and to become a more prominent insurer of municipal obligations. We
believe that the demand for our financial guaranty insurance will grow over the
long term as a result of the anticipated continuation of three trends:
- expansion of asset securitization outside the residential mortgage
sector;
- growth in the insurance of municipal obligations due to the increased
use of municipal bonds to finance repairs and improvements to the
nation's infrastructure and the increased municipal bond purchases by
individuals who generally purchase insured obligations; and
- increase of the volume of new domestic municipal bonds that are
insured; such volume having already grown every year since 1986 to
reach 48.7% in 1997, according to published sources.
The Company or its subsidiaries maintain offices in New York City, San
Francisco, Dallas, London, Paris, Madrid, Sydney, Tokyo, Singapore and Bermuda.
In addition to our domestic business, the Company pursues international
opportunities and currently operates in the European and Pacific Rim markets. We
were the first financial guaranty insurance company to insure obligations in
international markets.
We expect 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.
FSA's insurance financial strength is rated "Aaa" by Moody's Investors
Service, Inc. FSA's insurer financial strength is rated "AAA" by Standard &
Poor's Ratings Services ("S&P") and Standard and Poor's (Australia) Pty. Ltd.
FSA's claims-paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating
and Investment Information, Inc.
FSA is licensed to engage in the financial guaranty insurance business in
all 50 states, the District of Columbia and Puerto Rico.
S-2
<PAGE>
Our principal executive offices are located at 350 Park Avenue, New York,
New York 10022. The telephone number at that location is (212) 826-0100.
USE OF PROCEEDS
We estimate that we will receive approximately $96.6 million from the sale
of the Debt Securities, net of underwriting discounts and expenses. The net
proceeds will be used as follows: (a) approximately $70 million will be
contributed to the capital of FSA and (b) approximately $26.6 million will
be retained by the Company for general corporate purposes. General corporate
purposes may include the payment of principal and interest on debt, payment
of dividends, share repurchases and strategic or other investments.
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
September 30, 1998, and such capitalization as adjusted to give effect to the
issuance and sale of $100,000,000 aggregate principal amount of Debt Securities
(in each case without giving effect to the payment of expenses).
<TABLE>
<CAPTION>
September 30, 1998
------------------------------
Actual As Adjusted (1)
----------- ----------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Long-term debt ........................ $ 130,000 $ 230,000
Shareholders' equity:
Preferred Stock ....................... 700 700
Common Stock .......................... 694,168 730,889
Retained earnings .................. 307,220 307,220
Unrealized gain on investments ..... 42,942 42,942
Deferred Equity compensation ....... 33,358 33,358
Less treasury stock at cost ........ (112,947) (69,668)
--------- ----------
Total shareholders' equity .... 965,441 1,045,441
Total capitalization .......... $1,095,441 $1,275,441
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) Adjusted to give effect to the issuance and sale of and use of proceeds
from the Debt Securities, the issuance of common shares out of treasury to
EXEL Limited and the receipt of proceeds therefrom (see "Certain
Developments").
S-3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
We have derived the selected consolidated financial data in the table
below for each of the five years in the period ended December 31, 1997 from
audited consolidated financial statements of the Company previously filed with
the Commission. The selected consolidated financial data at September 30, 1997
and 1998, and for the nine months ended September 30, 1997 and 1998, are
unaudited but in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation. The
results of operations for the periods ended September 30, 1997 and 1998 are not
necessarily indicative of the operating results for the full year. You should
also read the consolidated financial statements and related notes of the Company
included, or incorporated by reference, in the Company's periodic reports filed
under the Exchange Act that are incorporated by reference herein. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1993(1) 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written ............... $ 127,409 $ 106,449 $ 110,742 $ 176,965 $ 236,391
Net premiums written ................. 65,006 77,757 77,576 121,000 172,878
Net premiums earned .................. 63,377 65,754 69,347 90,448 109,511
Net realized gains (losses) .......... 18,292 (3,773) 5,120 3,189 11,522
Net investment income ................ 47,948 46,592 48,965 65,064 72,085
Total revenues ....................... 127,654 109,350 127,273 158,998 202,421
Losses and loss
adjustment expenses ................ 84,054 3,024 21,658(3) 6,874 9,156
Amortization and write-off
of goodwill ........................ 81,598 -- -- -- --
Policy acquisition
and other expenses ................. 40,459 28,036 30,573 42,353 54,766
Income (loss) before
income taxes ....................... (163,886) 78,290 75,042 109,771 138,499
Net income (loss) .................... (124,707) 60,375 55,038 80,760 100,502
Diluted earnings (loss)
per common share ................... (5.44) 2.12 2.12 2.61 3.25
Cash dividends per
common share ....................... -- 0.16 0.32 0.35 0.41
Selected Financial Statistics:
GAAP Basis(2)
Loss ratio ........................... 132.6% 4.6% 31.2%(3) 7.6% 8.4%
Expense ratio ........................ 62.1 40.5 42.2 42.8 44.5
Combined ratio ....................... 194.7 45.1 73.4 50.4 52.9
SAP Basis(2)
Loss ratio ........................... 0.7% 28.1% 16.7% 10.6% 5.2%
Expense ratio ........................ 52.2 59.1 45.5 33.7 27.6
Combined ratio ....................... 52.9 87.2 62.2 44.3 32.8
BALANCE SHEET (end of period):
Total investments .................... $ 786,723(4) $ 747,176 $ 1,110,742 $ 1,154,416 $ 1,431,628
Prepaid reinsurance premiums ......... 127,849 121,668 133,548 151,224 173,123
Total assets ......................... 1,030,587 1,074,316 1,490,262 1,537,742 1,900,644
Deferred premium revenue ............. 328,165 334,569 463,897 511,196 595,196
Total liabilities .................... 488,615 528,880 712,315 736,482 1,018,284
Shareholders' equity ................. 541,972 545,436 777,947 801,260 882,360
Book value per common share .......... 20.95 20.92 24.67 26.71 30.66
Selected Financial Statistics(2):
Gross insurance in force ............. 61,290,000 65,824,000 99,034,000 125,432,000 158,020,000
Net insurance in force ............... 41,667,000 45,825,000 75,360,000 93,704,000 117,430,000
Qualified statutory capital .......... 454,048 465,787 644,653 675,944 781,661
Policyholders' leverage ratio ........ 92:1 98:1 117:1 139:1 150:1
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------------
1997 1998
------------- -------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written ............... $ 174,576 $ 220,604
Net premiums written ................. 123,590 154,530
Net premiums earned .................. 79,539 96,991
Net realized gains (losses) .......... 6,648 15,579
Net investment income ................ 51,402 57,648
Total revenues ....................... 146,611 170,618
Losses and loss
adjustment expenses ................ 6,867 3,140
Amortization and write-off
of goodwill ........................ -- --
Policy acquisition
and other expenses ................. 39,524 50,731
Income (loss) before
income taxes ....................... 100,220 116,747
Net income (loss) .................... 72,708 85,483
Diluted earnings (loss)
per common share ................... 2.36 2.83
Cash dividends per
common share ....................... 0.30 0.33
Selected Financial Statistics:
GAAP Basis(2)
Loss ratio ........................... 8.6% 3.2%
Expense ratio ........................ 44.6 45.2
Combined ratio ....................... 53.2 48.4
SAP Basis(2)
Loss ratio ........................... 6.0% (21.1)%
Expense ratio ........................ 27.4 27.9
Combined ratio ....................... 33.3 6.8
BALANCE SHEET (end of period):
Total investments .................... $ 1,487,902 $ 1,603,399
Prepaid reinsurance premiums ......... 172,859 202,139
Total assets ......................... 1,968,221 2,092,750
Deferred premium revenue ............. 575,750 682,228
Total liabilities .................... 1,085,229 1,127,309
Shareholders' equity ................. 882,992 965,441
Book value per common share .......... 29.46 33.96
Selected Financial Statistics(2):
Gross insurance in force ............. 145,393,000 198,471,000
Net insurance in force ............... 106,713,000 147,233,000
Qualified statutory capital .......... 788,108 843,099
Policyholders' leverage ratio ........ 135:1 175:1
</TABLE>
S-4
<PAGE>
- ---------------
1. Results for the year ended December 31, 1993, were adversely affected by
$63.7 million in net incurred losses for three commercial mortgage
transactions insured by FSA, $63.0 million of which losses were directly
paid by a US WEST, Inc. Letter of Credit. The payment under the US WEST,
Inc. Letter of Credit was accounted for under GAAP as a contribution of
capital (net of related tax effect) and the related losses were reflected
as an expense in the Company's income statement, while for SAP income
statement purposes the drawings under the US WEST, Inc. Letter of Credit
were netted against such losses. Results were also adversely affected by an
increase in FSA's General Reserve of $20.3 million, a write-off of $78.8
million of goodwill, a restructuring charge of $85.4 million resulting from
the premium payment by FSA to Commercial Reinsurance Company under its
reinsurance agreement with FSA and non-recurring charges of approximately
$10.0 million. Gross and net premiums written were reduced due to the
cession of $17.9 million of unearned premiums from FSA to Commercial
Reinsurance Company under such reinsurance agreement.
2. These ratios and statistics relate solely to FSA. The GAAP loss ratio is
losses and loss adjustment expenses incurred (inclusive of additions to
the General Reserve) divided by net premiums earned. The SAP loss ratio
is losses and loss adjustment expenses incurred (exclusive of additions
to the General Reserve) divided by net premiums earned. The GAAP expenses
ratio is underwriting and operating expenses divided by net premiums
earned. The SAP expense ratio is underwriting and operating expenses
divided by net premiums written. The combined ratio in both a GAAP and
SAP basis is the sum of the applicable loss and expense ratios.
3. 1995 losses and loss adjustment expenses and GAAP loss ratio include a
$15.4 million increase to General Reserve related to the merger with
Capital Guaranty Corporation. Excluding this increase, the loss ratio would
have been 9.0%.
4. Total investments at December 31, 1993 including $54.1 million of
unrealized gains and $24.3 million of funds withheld from the premium ceded
by FSA to Commercial Reinsurance Company, pending deposit of such funds in
a trust account satisfying the requirements of applicable insurance law.
S-5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated. Earnings represent consolidated earnings
before income taxes and fixed charges. Fixed charges consist of interest and
one third of rental expense which is deemed representative of the interest
factor for such rental expense. The ratio for 1993 is not meaningful because
of the significant loss incurred by the Company in that year. The Company
had no capitalized interest for the periods presented.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------- -------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges .... N/M 51.2 70.0 35.2 22.6 15.4
</TABLE>
CERTAIN DEVELOPMENTS
On November 3, 1998, the Company and EXEL Limited ("EXEL") closed a
transaction to create two new Bermuda-based financial guaranty insurance
companies. Each of the new companies has been initially capitalized with $100
million. Our company, Financial Security Assurance International Ltd. ("FSA
International"), is an indirect subsidiary of FSA and the other company, X.L.
Financial Assurance Ltd., is an indirect subsidiary of EXEL.
The Company has a minority interest in the EXEL company, and EXEL has a
minority interest in the FSA company.
In conjunction with forming the new companies, the Company and EXEL swapped
approximately $80 million of their respective common shares, based upon the
closing price for such shares on the New York Stock Exchange on October 29,
1998, with the Company delivering to EXEL 1,632,653 unregistered shares of
common stock, $0.01 par value, out of treasury and with EXEL delivering to the
Company 1,066,667 class A ordinary shares. The Company issued its common shares
to EXEL in reliance upon an exemption from registration under the Securities
of 1933 (the "Act") pursuant to Section 4(2) of the Act. In connection with
such transaction, the Company entered into a registration rights agreement
with EXEL pursuant to which EXEL is entitled to cause the Company to register
such shares under the Act upon the terms set forth in such agreement. The
Company then sold 800,000 of the EXEL shares to an unrelated third party for
$60,000,000 in cash in order to fund, in part, its investment in Financial
Security Assurance International Ltd.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will represent direct unsecured obligations of the
Company and will be issued as a separate series of debt securities under the
Indenture, dated as of September 15, 1997 (the "Senior Indenture"), between the
Company and First Union National Bank, as Trustee (the "Trustee"). The following
summary of certain terms of the Debt Securities and the Senior Indenture is not
complete. You should refer to the provisions and definitions in the Senior
Indenture, a copy of which is an exhibit to the Registration Statement of which
the accompanying Prospectus is a part.
- The Debt Securities will be limited to $100,000,000 aggregate
principal amount and will mature on November 1, 2098.
- Each Debt Security will bear interest at the rate of 6.950% per annum
from November 13, 1998 or from the most recent interest payment date
to which interest has been paid or provided for.
S-6
<PAGE>
- The interest is payable quarterly on February 1, May 1, August 1, and
November 1 of each year, commencing February 1, 1999, to the person in
whose name such Debt Security is registered at the close of business
on January 15, April 15, July 15 or October 15, immediately preceding
such interest payment date.
- The Debt Securities will be subject to defeasance and covenant
defeasance as provided in Article Thirteen of the Senior Indenture.
- The Company has the option of redeeming the Debt Securities, without
paying a premium or penalty, (1) at any time on or after November 1,
2003, in whole or in part, or (2) at any time within 90 days after the
occurrence of certain tax events, in whole but not in part.
Book-Entry Procedures
Except as set forth below, Debt Securities will be available for purchase
in book-entry form only in denominations of $25 and integral multiples thereof.
Market Makers expect to trade the Debt Securities in round lots of 100 units
(representing $2,500 aggregate principal amount). Upon issuance, all Debt
Securities will be represented by one fully registered global security (the
"Registered Global Security"). The Registered Global Security will be deposited
with, or on behalf of, the Depositary, and registered in the name of the
Depositary or its nominee. The Registered Global Security may be transferred, in
whole but not in part, by the Depositary to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
selected or approved by the Company or to a nominee of such successor
Depositary.
The Depositary is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities and Exchange Act of 1934. The Depositary holds securities
that its participants deposit with it. The Depositary also facilitates the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own the Depositary. Access to the depositary's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Ownership of beneficial interests in the Debt Securities will be limited to
persons that have accounts with the Depositary ("Agent Members") or persons that
may hold interests through Agent Members. Upon the issuance of the Registered
Global Security, the Depositary will credit, on its book-entry registration and
transfer system, the Agent Members' accounts with the respective principal
amounts of the Debt Securities beneficially owned by such Agent Members.
Ownership and transfer of beneficial interests in such Registered Global
Security will be shown on and effected through (i) records maintained by the
Depositary, with respect to interests of Agent Members, and (ii) records of
Agent Members, with respect to interests of persons holding through Agent
Members. The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in the Registered Global Security.
The Depositary, or its nominee, will be considered the sole owner or Holder
of the Debt Securities represented by such Registered Global Security for all
purposes under the Senior Indenture for so long as the Depositary, or its
nominee, is the registered owner of the Registered Global Security. Except as
provided below, owners of beneficial interests in the Registered Global Security
will not be entitled to have the Debt Securities registered in their names, will
not receive or be entitled to receive physical delivery of the Debt Securities
in definitive form and will not be considered the owners or Holders thereof
under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in the Registered Global
S-7
<PAGE>
Security must rely on the procedures of the Depositary and, if such Person is
not an Agent Member, on the procedures of the Agent Member through which such
Person owns its interest, to exercise any rights of a Holder under the Senior
Indenture. The Company understands that, under existing industry practices,
if the Company requests any action of Holders or if an owner of a beneficial
interest in the Registered Global Security desires to give or take any action
which a Holder is entitled to give or take under the Senior Indenture, the
Depository would authorize the Agent Members holding the relevant beneficial
interests to give or take such action, and such Agent Members would authorize
beneficial owners owning through such Agent Members to give or take such
action or would otherwise act upon the instructions of beneficial owners
holding through them.
The Company will pay principal and interest on the Debt Securities by wire
transfer of immediately available funds on the date such payment is due either
to the Depositary or its nominee, as the Holder of the Registered Global
Security. The Company expects that, upon receipt of such payment, the Depository
will credit the accounts of the Agent Members with payment in amounts
proportionate to their respective beneficial interests in such Registered Global
Security as shown on the records of the Depositary. The Company also expects
that payments by Agent Members to owners of beneficial interests in the
Registered Global Security will be the responsibility of such Agent Members and
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." None of the Company, the Trustee or any of
their agents are responsible or liable for any aspect of the records relating to
or payments made on account of beneficial ownership interests or for supervising
or reviewing any records relating to such beneficial ownership interests.
The Registered Global Security will be transferable or exchangeable for
Debt Securities in definitive form of an equal aggregate principal amount
without coupons and in denominations of $25 and integral multiples thereof if:
(a) the Depositary notifies the Company that it is at any time
unwilling or unable to continue as Depositary or the Depositary ceases to
be a clearing agent registered under the Exchange Act and a successor
Depositary is not appointed by the Company within 90 days after the Company
receives such notice, or becomes aware of such condition, as the case may
be, or
(b) the Company executes and delivers to the Trustee an officers'
certificate to the effect that the Registered Global Security shall be
transferable and exchangeable.
Such definitive Debt Securities shall be registered in such name or names
as the Depositary shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depositary from Agent
Members with respect to ownership of beneficial interests in the Registered
Global Security.
Optional Redemption
The Debt Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after November 1, 2003 and prior to maturity
without premium or penalty.
Tax Event Redemption
If a Tax Event (as defined below) has occurred and is continuing, the Debt
Securities will be redeemable at the option of the Company, within 90 days
following the occurrence of such Tax Event, in whole but not in part, without
premium or penalty.
"Tax Event" means that the Company shall have received an opinion of
counsel (which may be counsel to the Company or an affiliate but not an employee
thereof) experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after the date of
original issuance of the Debt Securities, there is more than an insubstantial
risk that interest payable by the Company on the Debt Securities is not, or will
not be, deductible by the Company for United States Federal income tax purposes.
S-8
<PAGE>
UNDERWRITING
The Company and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement (the "Underwriting Agreement" ) and a
pricing agreement with respect to the Debt Securities. Subject to the terms and
conditions contained in the Underwriting Agreement, each of the Underwriters
named below has severally agreed to purchase from the Company the aggregate
principal amount of Debt Securities set forth opposite its name below.
<TABLE>
<CAPTION>
Principal Amount
Underwriters of Debt Securities
------------ ------------------
<S> <C>
Goldman, Sachs & Co. .................................. $ 15,750,000
Salomon Smith Barney Inc. ............................. 15,750,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated .... 15,750,000
Morgan Stanley & Co. Incorporated ..................... 15,750,000
PaineWebber Incorporated .............................. 15,750,000
BT Alex. Brown Incorporated ........................... 1,250,000
A. G. Edwards & Sons, Inc. ............................ 1,250,000
EVEREN Securities, Inc. ............................... 1,250,000
CIBC Oppenheimer Corp. ................................ 1,250,000
SG Cowen Securities Corporation ....................... 1,250,000
Advest, Inc. .......................................... 625,000
Robert W. Baird & Co. Incorporated .................... 625,000
J. C. Bradford & Co. .................................. 625,000
Charles Schwab & Co. Inc. ............................. 625,000
Dain Rauscher Incorporated ............................ 625,000
Fahnestock & Co. Inc. ................................. 625,000
Fifth Third/The Ohio Company .......................... 625,000
Gruntal & Co., L.L.C. ................................. 625,000
Interstate/Johnson Lane Corporation ................... 625,000
Janney Montgomery Scott Inc. .......................... 625,000
Legg Mason Wood Walker, Incorporated .................. 625,000
McDonald & Company Securities, Inc. ................... 625,000
McGinn, Smith & Co., Inc. ............................. 625,000
Morgan Keegan & Company, Inc. ......................... 625,000
Olde Discount Corporation ............................. 625,000
Piper Jaffray Inc. .................................... 625,000
Raymond James & Associates, Inc. ...................... 625,000
The Robinson-Humphrey Company, LLC .................... 625,000
Roney Capital Markets ................................. 625,000
TD Securities (USA) Inc. .............................. 625,000
Trilon International Inc. ............................. 625,000
Tucker Anthony Incorporated ........................... 625,000
U. S. Clearing Corp. .................................. 625,000
Wheat First Securities, Inc. .......................... 625,000
-------------
Total............................ $ 100,000,000
-------------
-------------
</TABLE>
-------------
Debt Securities sold by the Underwriters to the public will initially
be offered at the initial public offering price set forth on the cover page of
this prospectus supplement. Any Debt Securities sold by the Underwriters to
securities dealers may be sold at a discount from the initial public offering
price of up to 2.00% of the principal amount of the Debt Securities.
S-9
<PAGE>
Any such securities dealers may resell any Debt Securities purchased from the
Underwriters to certain other brokers or dealers at a discount from the
initial public offering price of up to 1.60% of the principal amount of the
Debt Securities. If all the Debt Securities are not sold at the initial
offering price, the Underwriters may change the offering price and the other
selling terms.
Prior to this offering of Debt Securities, there has been no public market
for the Debt Securities. The Company intends to list the Debt Securities on the
New York Stock Exchange ("NYSE") and expects trading in the Debt Securities on
the NYSE to begin within thirty days after the original issue date. In order to
meet one of the requirements for listing the Debt Securities, the Underwriters
will undertake to sell lots of 100 or more to a minimum of 400 beneficial
holders.
The Debt Securities are a new issue of securities with no established
trading market. The Underwriters have advised the Company that, prior to the
commencement of trading of the Debt Securities on the NYSE, the Underwriters
intend to make a market in the Debt Securities but are not obligated to do so
and may discontinue market making at any time without notice. Neither the
Company nor the Underwriters can assure you that the trading market for the Debt
Securities will be liquid.
In connection with the offering, the Underwriters may purchase and sell the
Debt Securities in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a greater total
principal amount of Debt Securities than they are required to purchase from the
Company in the offering. Stabilizing transactions consist of certain bids or
purchases for the purpose of preventing or retarding a decline in the market
price of the Debt Securities while the offering is in progress.
The Underwriters also may impose a penalty bid. This may occur when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the Underwriters have repurchased Debt
Securities sold by or for the account of such Underwriter in stabilizing or
covering transactions.
These activities of the Underwriters may stabilize, maintain or otherwise
affect the market price of the Debt Securities. As a result, the price of the
Debt Securities may be higher than the price that might otherwise prevail on the
open market. If these activities are commenced, they may be discontinued at any
time. These transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The Underwriters, and certain of their affiliates, have from time to time
provided investment banking, financial advisory and other services to the
Company and its affiliates in the ordinary course of business.
It is expected that delivery of the Debt Securities will be made against
payment therefor on or about November 13, 1998, which is the fifth business day
following the date of this prospectus supplement (such settlement cycle being
herein referred to as "T+5"). Purchasers of Debt Securities should note that the
ability to settle secondary market trades of the Debt Securities effected on the
date of pricing and the succeeding business days may be affected by the T+5
settlement.
The Company expects to have an estimated $225,000 of expenses in connection
with this offering.
LEGAL OPINIONS
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Bruce E. Stern, Esq., General Counsel of the Company, and for the
Underwriters by Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
10019.
S-10
<PAGE>
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,
1997, have been audited by PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand, L.L.P.), independent accounts, as set forth in their reports thereon
dated January 26, 1998 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.
ADDITIONAL AVAILABLE INFORMATION
You may obtain information on the operation of the public reference
facilities maintained by the Securities and Exchange Commission that are
described in the accompanying Prospectus under the heading "Available
Information" by calling the SEC at 1-800-SEC-0330.
S-11
<PAGE>
PROSPECTUS
US $250,000,000
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
Debt Securities
Common Stock
Financial Security Assurance Holdings Ltd., a New York
corporation (the "Company"), may offer from time to time (a) its unsecured debt
securities, in one or more series, which may be either senior debt securities
(the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"); and (b) shares of its Common Stock, par value $.01 per
share (the "Common Stock"). The Debt Securities and Common Stock (collectively,
the "Securities") will be offered in amounts, at prices and on terms to be
determined at the time any such Securities are to be offered. The Securities
will have an aggregate initial offering price of up to $250,000,000 or the
equivalent thereof in U.S. dollars if any Securities are denominated in a
foreign currency or in currency units.
Specific terms of the particular Debt Securities in respect of
which this Prospectus is being delivered will be set forth in an accompanying
Prospectus Supplement (the "Prospectus Supplement"), which will describe,
without limitation and where applicable, the following: (a) in the case of the
Debt Securities, the specific designation, aggregate principal amount,
denominations, maturity, premium, if any, interest rate (which may be fixed or
variable) or method of calculation of interest and premium, if any, place or
places where principal, premium, if any, and interest will be payable, any terms
of redemption, any sinking fund provisions, terms for any conversion or exchange
into other Securities, initial public offering or purchase price, methods of
distribution and other special terms, and (b) in the case of Common Stock, the
number of shares offered, initial public offering or purchase price, methods of
distribution and other special terms.
The Prospectus Supplement will also contain information, as
applicable, about certain United States Federal income tax considerations
relating to the Securities.
The Securities may be sold to or through underwriters, through
dealers or agents or directly to purchasers. See "Plan of Distribution". The
names of any underwriters, dealers or agents involved in the sale of Securities
in respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in the
Prospectus Supplement.
This Prospectus may not be used to consummate sales of
Securities unless accompanied by a Prospectus Supplement.
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
<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. The securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA, NOR HAS THE COMMISSIONER RULED UPON THE ACCURACY
OR ADEQUACY OF THIS DOCUMENT.
No dealer, salesperson or other person has been authorized to
give any information or to make any representations other than those contained
or incorporated by reference in this Prospectus and the applicable Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any agent,
underwriter or dealer. This Prospectus and the Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
to which they relate in any jurisdiction in which it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
AVAILABLE INFORMATION
The Company 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 and
proxy and information statements and other information concerning the Company
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
and at the following regional offices of the Commission: Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661, 14th Floor, and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at prescribed rates, or may be viewed by visiting the Commission's web site at
http://www.sec.gov. Reports, proxy statements and other information concerning
the Company may also be inspected at the offices of the New York Stock Exchange,
Inc. at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. In addition, certain documents filed by the
Company with the Commission have been incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference." Statements
contained herein concerning the provisions of any document do not purport to be
complete, and in each instance are qualified in all respects by reference to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) The Company's Quarterly Report on Form 10-Q for each of
the first two calendar quarters of 1997.
(3) The description of the Common Stock of the Company
contained in the Company's Registration Statement on Form 8-A declared
effective by the Commission on May 6, 1994, and any amendment or report
filed for the
purpose of updating such description.
Any documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Securities offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein, or contained in this Prospectus, shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference 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.
The Company will provide without charge to each person to whom
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the foregoing documents). Any such request should
be directed to: Bruce E. Stern, Esq., Financial Security Assurance Holdings
Ltd., 350 Park Avenue, New York, New York 10022 (telephone: (212) 826-0100).
THE COMPANY
Financial Security Assurance Holdings Ltd. (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,
3
<PAGE>
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 local 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 acquisition 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.
USE OF PROCEEDS
Unless otherwise stated in the applicable Prospectus
Supplement, the net proceeds to the Company from the sale of the Securities will
be used for general corporate purposes of the Company.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed
charges for the Company for the periods indicated. Earnings represent
consolidated income before income taxes and fixed charges. Fixed charges consist
of interest and one-third of rental expense which is deemed representative of
the interest factor for such rental expense. The ratio for 1993 is considered
not meaningful because of the significant loss incurred by the Company in that
year. The Company had no capitalized interest for the periods presented.
4
<PAGE>
<TABLE>
<CAPTION>
Six
Months
Ended
Years Ended December 31, June 30,
---------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges .. 31.1 N/M 51.2 70.0 35.2 32.7 39.5
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities offered hereby are to be issued in
one or more series under a Senior Indenture, as supplemented from time to time
(as so supplemented, the "Senior Indenture"), between the Company and a trustee
to be named in the applicable Prospectus Supplement (the "Senior Indenture
Trustee"). The Subordinated Debt Securities offered hereby are to be issued in
one or more series under a Subordinated Indenture, as supplemented from time to
time (as so supplemented, the "Subordinated Indenture" and, together with the
Senior Indenture, the "Indentures"), between the Company and a trustee to be
named in the applicable Prospectus Supplement (the "Subordinated Indenture
Trustee" and, together with the Senior Indenture Trustee, the "Trustees").
Copies of the Senior Indenture and the form of the Subordinated Indenture have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
The statements herein relating to the Debt Securities and the
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures (as they may be amended or supplemented
from time to time) and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Whenever particular sections or defined terms of the Indentures
(as they may be amended or supplemented from time to time) are referred to
herein or in a Prospectus Supplement, such sections or defined terms are
incorporated herein or therein by reference.
General
The Debt Securities will be direct and unsecured obligations
of the Company. The Senior Debt Securities will rank equally and ratably with
all other unsecured and unsubordinated obligations of the Company. The
Subordinated Debt Securities will be subordinate and junior in right of payment
to the extent and in the manner set forth in the Subordinated Indenture to all
Senior Debt (as defined below) of the Company. See "-Subordination under the
Subordinated Indenture". As a non-operating holding company, most of the assets
of the Company are owned by the Company's subsidiaries, and the Company relies
primarily on dividends or other payments from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations. Accordingly, the Debt Securities will be effectively subordinated
to all existing and future liabilities of the Company's subsidiaries. In
addition, the payment of dividends or other amounts by the Company's insurance
company subsidiary, Financial Security Assurance Inc., is limited under the
applicable insurance laws and regulations of the State of New York. The
Indentures do not limit the aggregate amount of Debt Securities that may be
issued thereunder. Except as otherwise provided in the applicable Prospectus
Supplement, the Indentures, as they apply to any series of Debt Securities, do
not limit the incurrence or issuance of other secured or unsecured debt of the
Company, whether under either of the Indentures or any other indenture that the
Company may enter into in the future or otherwise.
The Debt Securities will be issuable in one or more series
pursuant to an indenture supplemental to the Senior Indenture or the
Subordinated Indenture, as the case may be, or in accordance with a resolution
of the Company's Board of Directors or a committee thereof.
5
<PAGE>
The applicable Prospectus Supplement or Prospectus Supplements
will describe the following terms of the Debt Securities (to the extent such
terms are applicable to such Debt Securities): (1) the title of the Debt
Securities; (2) any limit upon the aggregate principal amount of the Debt
Securities; (3) the date or dates on which the principal of the Debt Securities
is payable; (4) the rate or rates, if any, at which the Debt Securities shall
bear interest, the interest payment dates on which any such interest shall be
payable, the right, if any, of the Company to defer or extend an interest
payment date, or the method by which any of the foregoing shall be determined;
(5) the place or places where, subject to the terms of the Indenture, the
principal of and premium, if any, and interest on the Debt Securities will be
payable; (6) any period or periods within or date or dates on which, the price
or prices at which and the terms and conditions upon which Debt Securities may
be redeemed, in whole or in part, at the option of the Company pursuant to any
sinking fund or otherwise; (7) the obligation, if any, of the Company to redeem,
purchase or repay the Debt Securities pursuant to any sinking fund, amortization
or analogous provisions or at the option of a Holder thereof and the period or
periods within which, the price or prices at which, the currency or currencies
(including currency unit or units) in which and the other terms and conditions
upon which the Debt Securities shall be redeemed, repaid or purchased, in whole
or in part, pursuant to such obligation; (8) the denominations in which any Debt
Securities shall be issuable if other than denominations of $1,000 and any
integral multiple thereof; (9) if other than in U.S. Dollars, the currency or
currencies (including currency unit or units) in which the principal of (and
premium, if any) and interest, if any, on the Debt Securities shall be payable,
or in which the Debt Securities shall be denominated; (10) any additions,
modifications or deletions, in the Events of Default or covenants of the Company
specified in the Indenture with respect to the Debt Securities; (11) if other
than the principal amount thereof, the portion of the principal amount of Debt
Securities that shall be payable upon declaration of acceleration of the
maturity thereof; (12) any index or indices used to determine the amount of
payments of principal of and premium, if any, on the Debt Securities and the
manner in which such amounts will be determined; (13) the issuance of a
temporary Global Security representing all of the Debt Securities of such series
and exchange of such temporary Global Security for definitive Debt Securities of
such series; (14) whether the Debt Securities of the series shall be issued in
whole or in part in the form of one or more Global Securities and, in such
case, the Depositary for such Global Securities, and the circumstances under
which any such Registered Global Security may be registered for transfer or
exchange, or authenticated and delivered, in the name of a Person other than
such Depositary or its nominee, if other than as set forth in the Indentures;
(15) the appointment of any paying agent, transfer agent or registrars; (16) the
terms and conditions of any obligation or right of the Company to convert or
exchange the Subordinated Debt Securities into other Securities or at the option
of a Holder thereof; (17) the relative degree, if any, to which the Debt
Securities of any series shall be senior to or subordinated to other series of
Debt Securities in right of payment, whether such other series of Debt
Securities are outstanding or not; and (18) any other terms of the Debt
Securities not inconsistent with the provisions of the Indentures. (Section
2.03).
Debt Securities may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. Certain federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable
in one or more foreign currencies or currency units or if any Debt Securities
are denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, the restrictions,
elections, certain federal income tax considerations, specific terms and other
information with respect to such issue of Debt Securities and such foreign
currency or currency units will be set forth in the applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of
principal of, premium, if any, or interest on any series of Debt Securities,
special federal income tax,
6
<PAGE>
accounting and other considerations applicable thereto will be described in the
applicable Prospectus Supplement.
Denominations, Registration, Payment and Transfer
Unless otherwise specified in the applicable Prospectus
Supplement, the Debt Securities will be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. Debt
Securities of any series will be exchangeable for other Debt Securities of the
same issue and series, of any authorized denominations, of a like aggregate
principal amount.
Debt Securities may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the registrar or at the office of any transfer
agent designated by the Company for such purpose with respect to any series of
Debt Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. The Company will appoint the Trustees as registrars
under the Indentures. If the applicable Prospectus Supplement refers to any
transfer agents or paying agents (in addition to the registrar) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of any such transfer agent or
paying agent or approve a change in the location through which any such transfer
agent or paying agent acts. The Company may at any time designate additional
transfer agents or paying agents with respect to any series of Debt Securities.
Neither the Company nor the Trustees shall be required to
exchange or register a transfer of (a) any Debt Securities of any series for a
period of 15 days preceding the first mailing of notice of redemption for such
series to be redeemed, or (b) any Debt Securities selected, called or being
called for redemption except, in the case of any Debt Security to be redeemed in
part, the portion thereof not so to be redeemed.
Unless otherwise indicated in an applicable Prospectus
Supplement, payment of principal of (and premium, if any) and any interest on
Debt Securities will be made at the office of the Trustee for such Debt
Securities in the City of New York or at the office of such paying agent or
paying agents as the Company may designate from time to time in an applicable
Prospectus Supplement, except that at the option of the Company payment of any
interest may be made by check mailed to the address of the person entitled
thereto as such address shall appear in the register. Unless otherwise indicated
in an applicable Prospectus Supplement, payment of any interest on Debt
Securities will be made to the person in whose name such Debt Security is
registered at the close of business on any record date for such interest, except
in the case of defaulted interest.
Global Debt Securities
The Debt Securities of a series may be issued in whole or in
part in the form of one or more Global Debt Securities that will be deposited
with, or on behalf of, a depositary (the "Depositary") identified in the
Prospectus Supplement relating to such series. Global Debt Securities may be
issued only in fully registered form and in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a Global Debt Security may not be transferred
except as a whole by the Depositary for such Global Debt Security to a nominee
of such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by the Depositary or any nominee to a
successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect
to a series of Debt Securities will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following provisions
will generally apply to depositary arrangements.
7
<PAGE>
Upon the issuance of a Global Debt Security, and the deposit
of such Global Debt Security with or on behalf of the Depositary, the Depositary
for such Global Debt Security or its nominee will credit on its book-entry
registration and transfer system, the respective principal amounts of the
individual Debt Securities represented by such Global Debt Security to the
accounts of persons that have accounts with such Depositary ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Debt Securities or by the Company if such Debt Securities are
offered and sold directly by the Company. Ownership of beneficial interests in a
Global Debt Security will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Debt Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Debt Security.
So long as the Depositary for a Global Debt Security, or its
nominee, is the registered owner of such Global Debt Security, such Depositary
or such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Global Debt Security for all purposes
under the Indenture governing such Debt Securities. Except as provided below,
owners of beneficial interests in a Global Debt Security will not be entitled to
have any of the individual Debt Securities of the series represented by such
Global Debt Security registered in their names, will not receive or be entitled
to receive physical delivery of any such Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture governing such Debt Securities.
Payments of principal of (and premium, if any) and interest on
individual Debt Securities represented by a Global Debt Security registered in
the name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Debt Security
representing such Debt Securities. None of the Company, the Trustee for such
Debt Securities, any paying agent, or the Securities registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership interest
of the Global Debt Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for a series of Debt
Securities or its nominee, upon receipt of any payment of principal, premium or
interest in respect of a permanent Global Debt Security representing any of such
Debt Securities, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of such Global Debt Security for such Debt Securities as shown on the
records of such Depositary or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Debt
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in `street name'.
Such payments will be the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus
Supplement, if a Depositary for a series of Debt Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, the Company will
issue individual Debt Securities of such series in exchange for the Global Debt
Security representing such series of Debt Securities. In addition, the Company
may at any time and in its sole discretion, subject to any limitations described
in the Prospectus Supplement relating to such Debt Securities, determine not to
have any Debt Securities of such series represented by one or more Global Debt
Securities and, in such event, will issue individual Debt Securities of such
series in exchange for the Global Debt Security or Securities representing such
series of Debt Securities. Further, if the Company so specifies with respect to
the Debt Securities of a series, an owner of a
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<PAGE>
beneficial interest in a Global Debt Security representing Debt Securities of
such series may, on terms acceptable to the Company, the Trustee and the
Depositary for such Global Debt Security, receive individual Debt Securities of
such series in exchange for such beneficial interests, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities. In any such instance, an owner of a beneficial interest in a Global
Debt Security will be entitled to physical delivery of individual Debt
Securities of the series represented by such Global Debt Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name. Individual Debt Securities of such series so issued will
be issued in denominations, unless otherwise specified by the Company, of $1,000
and integral multiples thereof.
Certain Covenants of the Company
Limitations on Liens. Under the Senior Indenture, so long as
Senior Debt Securities are outstanding, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, create, issue, assume, incur
or guarantee any indebtedness for borrowed money which is secured by a Mortgage
of any nature on any of the present or future capital stock of any Restricted
Subsidiary unless the Senior Debt Securities then outstanding shall be secured
equally and ratably with, or prior to, such other secured debt so long as it is
outstanding. (Section 3.06)
Limitations on Disposition of Stock of Restricted
Subsidiaries. Under the Senior and Subordinated Indentures, so long as Debt
Securities are outstanding, the Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of any shares of capital
stock of any Restricted Subsidiary except for (i) a sale, transfer or other
disposition of any capital stock of any Restricted Subsidiary to a wholly owned
Subsidiary of the Company or such Subsidiary; (ii) a sale, transfer or other
disposition of the entire capital stock of any Restricted Subsidiary for at
least fair value (as determined by the Board of Directors of the Company acting
in good faith); or (iii) a sale, transfer or other disposition of the capital
stock of any Restricted Subsidiary for at least fair value (as determined by the
Board of Directors of the Company acting in good faith) if, after giving effect
thereto, the Company and its Subsidiaries would own more than 80% of the issued
and outstanding Voting Stock of such Restricted Subsidiary. (Section 3.07)
Consolidation, Merger, Sale or Conveyance
Under the Senior and Subordinated Indentures, so long as Debt
Securities are outstanding, the Company will not consolidate with or merge into
any other corporation or convey, transfer or lease its properties or assets as
an entirety or substantially as an entirety to any person, unless (i) the
successor or purchaser is a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia;
(ii) such successor or purchaser shall expressly assume, by supplemental
indenture satisfactory in form to the related Trustee, the due and punctual
payment of the principal of, premium, if any, and interest on all the Debt
Securities and the performance and observance of every covenant and condition of
the Company under the related Indenture; and (iii) immediately after giving
effect to such transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing under the related Indenture. (Section 9.01)
Certain Definitions
The covenants and other provisions relating to the Debt
Securities are to be read in conjunction with the definitions contained in the
Senior and Subordinated Indentures, certain of which are substantially to the
following effect:
"Debt Securities" means all unsecured debt securities, notes
or other evidences of indebtedness issued in one or more series that the Company
may issue from time to time in accordance with the terms of the related
Indentures.
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<PAGE>
"Mortgage" means any mortgage, pledge, lien, security interest
or other encumbrance.
"Restricted Subsidiary" means Financial Security Assurance
Inc. and any successor to all or substantially all of its business, provided
that such successor is a Subsidiary.
"Subsidiary" means a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"Voting Stock" means, with respect to any Subsidiary, stock of
any class or classes (or equivalent interests), if the holders of the stock of
such class or classes (or equivalent interests) are ordinarily, in the absence
of contingencies, entitled to vote for the election of the directors (or persons
performing similar functions) of such corporation, even though the right so to
vote has been suspended by the happening of such a contingency.
Events of Default
Any one of the following events will constitute an Event of
Default with regard to any series of Debt Securities under each of the
Indentures: (i) default continued for 30 days in payment of any installment of
interest on any of the Debt Securities when due; (ii) default in payment of all
or any part of the principal of the Debt Securities when due and payable either
at maturity, upon any redemption, by declaration or otherwise; (iii) default
continued for 60 days after notice of such default in performance of any
covenant or warranty of the Indenture by the Company in respect of the Debt
Securities; (iv) certain events of default with respect to indebtedness of the
Company (other than the Debt Securities or non-recourse obligations of the
Company) in an aggregate principal amount in excess of $10,000,000 which default
shall consist of the failure to make any payment at maturity or shall have
resulted in the acceleration of the maturity of such indebtedness; (v) certain
events of bankruptcy, insolvency, or reorganization of the Company or any
Restricted Subsidiary; or (vi) any other Event of Default provided in the
supplemental indenture or resolution of the Board of Directors under which such
series of Debt Securities is issued or in the form of Debt Security for such
series. (Section 5.01) The Company is required to file with the Trustee annually
a written statement as to the fulfillment of certain of its obligations under
the Indenture. (Section 3.05)
Each Indenture provides that the Trustee may withhold notice
to the holders of Debt Securities of any default (except in payment of principal
of or premium, if any, or interest on the Debt Securities) if the Trustee
considers it in the interest of the holders of the Debt Securities to do so.
(Section 5.11)
Each Indenture provides that (a) if an Event of Default
described in clause (i) or (ii) above shall have occurred and be continuing with
regard to the Debt Securities of any series, either the Trustee or the holders
of 25% in aggregate principal amount of the Debt Securities of that series then
outstanding (each such series acting as a separate class) may declare the
principal (or, if Debt Securities of such series are original issue discount
Debt Securities, such portion of the principal amount as may be specified in the
terms of that series) of all Debt Securities of such series and interest accrued
thereon, if any, to be due and payable immediately and (b) if an Event of
Default described in clause (iii), (iv) or (v) above shall have occurred and be
continuing, either the Trustee or the holders of 25% in aggregate principal
amount of all Debt Securities (or in the case of an Event of Default described
in clause (iii) above, all series affected by such Event of Default) then
outstanding (voting as a single class) may declare the principal (or, if Debt
Securities of such series are original issue discount Debt Securities, such
portion of the principal amount as may be specified in the terms of that series)
of all Debt Securities (in the case of clause (iii) above, limited to all series
affected) then outstanding and interest accrued thereon, if any, to be due and
payable immediately. Upon certain conditions, such declaration by the holders of
Debt Securities of any series may be annulled and past defaults which have been
cured may be waived by (a) with respect to clauses (i) or (ii) the
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<PAGE>
holders of a majority in aggregate principal amount of Debt Securities of such
series (each such series voting as a separate class) then outstanding and (b)
with respect to clauses (iii), (iv) or (v) above, the holders of a majority in
aggregate principal amount of the Debt Securities of all series (in the case of
clause (iii) above, limited to all series affected by such default) then
outstanding (voting as a single class). (Section 5.01) Prior to a declaration of
acceleration of maturity of the Debt Securities of any series, the holders of a
majority in aggregate principal amount of the Debt Securities of each series
voting separately or all series voting as a single class, depending on the
nature of the Event of Default, may waive any Event of Default, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any of the Debt Securities of such series or in respect of a
covenant or provision of the Indenture which cannot be modified or amended
without the consent of the holder of each Debt Security of such series affected.
(Section 5.10)
Subject to the provisions of each Indenture relating to the
duties of the Trustee, the Trustee shall be under no obligation to exercise any
of its rights or powers under the relative Indenture at the request, order or
direction of any of the holders of Debt Securities, unless such holders shall
have offered the Trustee reasonable indemnity. (Section 6.02) Subject to such
provision for indemnification, the holders of a majority in aggregate principal
amount of the Debt Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee. (Section 5.09)
Defeasance and Covenant Defeasance
Except as may otherwise be provided in the applicable
Prospectus Supplement with respect to the Debt Securities of any series, each
Indenture provides that, subject to certain conditions, the Company may elect
either (i) to be discharged from any and all obligations with respect to the
Debt Securities (except for the obligations to register the transfer or exchange
of the Debt Securities, to replace temporary or mutilated, defaced, destroyed,
lost or stolen Debt Securities, to maintain an office or agency for the payment
of principal and interest in respect of the Debt Securities, to appoint a paying
agent and, if the Company elects to act as the paying agent, to hold moneys for
such payment in trust) ("Defeasance") or (ii) to be released from its
obligations with respect to the Debt Securities under Sections 3.06 and 3.07 of
the Indenture (being the sections of the Indenture captioned "Limitations on
Liens" and "Limitations on Disposition of Stock of Restricted Subsidiaries" see
"Certain Covenants of the Company") ("Covenant Defeasance"), upon the deposit
with the Trustee (or another qualifying trustee) irrevocably in trust for such
purpose, of money and/or United States government obligations in an amount
which, in the opinion of a nationally recognized firm of independent public
accountants delivered to such trustee, would be sufficient to pay the principal
of and premium, if any, and interest on the Debt Securities on the scheduled due
dates therefor. (Sections 13.01 through 13.04)
Each Indenture provides that, to effect Defeasance or Covenant
Defeasance, the Company must deliver to the Trustee an opinion of counsel to the
effect that Defeasance or Covenant Defeasance, as the case may be, will not
cause the holders of the Debt Securities to recognize income, gain or loss for
federal income tax purposes. In addition, in the case of Defeasance, such
opinion of counsel must state that a private letter ruling or a revenue ruling
to the same effect has been issued by the United States Internal Revenue Service
or state that since the date of the Indenture there has been a change in the
applicable federal income tax law or the interpretation thereof to the same
effect. (Section 13.04)
With respect to the Subordinated Indenture, in order to be
discharged as described above, no default in the payment of principal of (or
premium, if any) or interest on any Senior Debt shall have occurred and be
continuing or no Event of Default with respect to the Senior Debt shall have
occurred and be continuing and shall have resulted in such Senior Debt becoming
or being declared due and payable prior to the date it would have become due and
payable.
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<PAGE>
Modification and Waiver
Each Indenture provides that the Company may enter into a
supplemental indenture or indentures for the purpose of adding to, changing or
eliminating any of the provisions of such Indenture or of any supplemental
indentures or of modifying the rights of the holders of Debt Securities issued
thereunder if approved in writing signed by the holders of not less than a
majority in aggregate principal amount of all outstanding Debt Securities
affected thereby voting as one class; provided that the consent of each holder
of Debt Securities affected thereby is required for any modification or
alteration which (i) extends the final maturity of any Debt Securities, or
reduces the principal amount thereof, or reduces the rate or extends the time of
payment of interest thereon, or reduces any amount payable on redemption thereof
or impairs or affects the right of any holder of Debt Securities to institute
suit for the payment thereof, (ii) reduces the percentage in aggregate principal
amount, the consent of the holders of which is required for any such
supplemental indenture or (iii) modifies any provision with respect to the
subordination of Debt Securities of any series in a manner adverse to the
holders thereof. (Section 8.02) The holders of at least a majority in aggregate
principal amount of the outstanding Debt Securities of all series (including the
Debt Securities) voting as one class may waive compliance by the Company with
certain covenants contained in each Indenture. (Section 3.09)
Subordination under the Subordinated Indenture
In the Subordinated Indenture, the Company has covenanted and
agreed that any Subordinated Debt Securities issued thereunder will be
subordinate and junior in right of payment to all Senior Debt to the extent
provided in the Subordinated Indenture. Upon any payment or distribution of
assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets or
any bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceeding of the Company, the
holders of the Senior Debt will first be entitled to receive payment in full of
principal of (and premium, if any) and interest, if any, on such Senior Debt
before the holders of Subordinated Debt Securities will be entitled to receive
or retain any payment in respect of the principal of (and premium, if any) or
interest, if any, on the Subordinated Debt Securities. (Section 14.01 and 14.02)
In the event of the acceleration of the maturity of any
Subordinated Debt Securities, the holders of all Senior Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of Subordinated Debt Securities will be entitled to receive any payment
upon the principal of (or premium, if any) or interest, if any, or the
Subordinated Debt Securities. (Section 14.03)
No payments on account of principal (or premium, if any) or
interest, if any, in respect of the Subordinated Debt Securities may be made if
there shall have occurred and be continuing a default in any payment with
respect to Senior Debt, or an event of default with respect to any Senior Debt
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default. (Section 14.04)
The Subordinated Indenture defines "Senior Debt" as the
principal of (and premium, if any) and interest, if any (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not such claim for
post-petition interest is allowed in such proceeding), on Debt, whether incurred
on or prior to the date of the Subordinated Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Subordinated Debt Securities or to other Debt which
is pari passu with, or subordinated to, the Subordinated Debt Securities;
provided, however, that Senior Debt shall not be deemed to include (i) any Debt
of the Company which when incurred and without respect to any election under
Section 1111(b) of the Bankruptcy code was without
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<PAGE>
recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company, (iv) any liability for
taxes, (v) indebtedness or monetary obligations to trade taxes and (v)
indebtedness or monetary obligations to trade creditors or assumed by the
Company or any of its subsidiaries in the ordinary course of business in
connection with the obtaining of materials or services. As used in the
proceeding sentence the term "Debt" means with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed; (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses; (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person; (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such Person;
and (vi) every obligation of the type referred to in clauses (i) through (v) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
The Subordinated Indenture places no limitation on the amount
of additional Senior Debt that may be incurred by the Company. The Company may
from time to time incur additional indebtedness constituting Senior Debt.
The Subordinated Indenture provides that the foregoing
subordination provisions, insofar as they relate to any particular issue of
Subordinated Debt Securities, may be changed prior to such issuance. Any such
change would be described in the Prospectus Supplement relating to such
Subordinated Debt Securities.
Conversion or Exchange
The Subordinated Debt Securities of any series may be
convertible or exchangeable into Common Stock or other Securities. The specific
terms and conditions on which Subordinated Debt Securities of any series may be
so converted or exchanged will be set forth in the applicable Prospectus
Supplement. Such terms may include the conversion or exchange price, provisions
for conversion or exchange, either mandatory, at the option of the holder, or at
the option of the Company, and provisions under which the number of shares of
Common Stock or other Securities to be received by the holders of Subordinated
Debt Securities would be calculated as of a time and in the manner stated in the
applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The Company's Certificate of Incorporation authorizes the
issuance of 50,000,000 shares of Common Stock, par value $.01 per share. At July
31st, 1997, there were outstanding 31,016,527 shares of Common Stock of the
Company (includes 1,127,883 shares of Common Stock owned by a trust on behalf of
the Company and excludes 1,259,774 shares of Common Stock actually held in
treasury).
The following description of the common stock of the Company
is subject to the detailed provisions of the Company's Certificate of
Incorporation and by-laws as currently in effect (the "Bylaws"). This
description does not purport to be complete or to give full effect to the terms
of the provisions of statutory or common law and is subject to, and qualified in
its entirety by reference to, the Certificate of Incorporation and the Bylaws,
each of which has been filed as an exhibit to or will be incorporated by
reference in the Registration Statement of which this Prospectus is a part.
The amount of dividends payable in the future will be reviewed
periodically by the Board of Directors in light of the Company's earnings,
financial condition and capital and other cash requirements. It is the policy of
the Board of Directors that FSA
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<PAGE>
Holding retain an adequate portion of its earnings to support the growth of its
business. There is no requirement or assurance that dividends will be paid.
Most of the operations of the Company are conducted through
FSA. FSA's ability to declare and pay dividends to Capital Guaranty which in
turn declares and pays dividends to the Company, is dependent on 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 related
regulations of New York and other states.
The Company will ordinarily be required to withhold United
States federal income taxes in the amount of 30% of any dividends paid to
non-United States shareholders not otherwise subject to United States federal
income taxation, unless a tax treaty between the United States and the country
of the shareholder's residence provides for withholding at a reduced rate.
The Common Stock is traded on the New York Stock Exchange
under the symbol FSA. The transfer agent for the Common Stock is The Bank of New
York.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more
underwriters for public offering and sale by them or may sell Securities to
investors directly or through agents or dealers. Any such underwriter, agent or
dealer involved in the offer and sale of the Securities will be named in an
applicable Prospectus Supplement.
Offers and sales of Securities hereunder may be effected at a
fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as its agents to offer and sell the Securities
upon the terms and conditions set forth in any Prospectus Supplement. If
Securities are sold by means of an underwritten offering, the Company will
execute an underwriting agreement with an underwriter or underwriters at the
time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, the
respective amounts underwritten and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the applicable Prospectus Supplement which
will be used by the underwriters to make resales of the Securities in respect of
which this Prospectus is being delivered to the public. If any underwriter or
underwriters are utilized in the sale of the Securities, unless otherwise set
forth in the applicable Prospectus Supplement, the underwriting agreement will
provide that the obligations of the underwriters are subject to certain
conditions precedent and that the underwriters with respect to a sale of
Securities will be obligated to purchase all such Securities if any are
purchased.
In connection with the sale of Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to
underwriters or agents in connection with the offering of Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in an applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters under the Securities Act, and any discounts and
commissions received by them and any profit realized by them on resale of the
Securities may be deemed to be underwriting discounts and commissions under the
Securities Act. Underwriters, dealers and agents may be entitled, under
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<PAGE>
agreements with the Company to indemnification against and contribution toward
certain civil liabilities, including liabilities, under the Securities Act, and
to reimbursement by the Company for certain expenses.
If a dealer is utilized in the sale of the Securities in
respect of which this Prospectus is delivered, the Company will sell such
Securities to such dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale. The name of the dealer and the terms of the transaction will
be set forth in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by the
Company and the sale thereof may be made by the Company directly to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such transaction will be set forth in the Prospectus Supplement relating
thereto.
The Securities may or may not be listed on a national
securities exchange or a foreign securities exchange. Certain series of the
Securities will be a new issue and will not have an established trading market.
No assurances can be given that there will be a market for any of the
Securities.
Agents, underwriters and dealers may be customers of, engage
in transactions with or perform services for, the Company and its subsidiaries
in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the legality of the
Securities being offered hereby will be passed upon for the Company by Bruce E.
Stern, Esq., General Counsel of the Company, and for any underwriters or agents
by counsel to be named in the Prospectus Supplement.
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.
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the securities offered hereby, but only under circumstances and in
jurisditions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Supplement
The Company.......................... S-2
Use of Proceeds...................... S-3
Capitalization....................... S-3
Selected Consolidated Financial and
Statistical Data................... S-4
Ratio of Earnings to Fixed Charges... S-6
Certain Developments................. S-6
Description of Debt Securities....... S-6
Underwriting......................... S-9
Legal Opinions....................... S-10
Experts.............................. S-11
Additional Available Information..... S-11
Prospectus
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 3
Use of Proceeds...................... 4
Ratio of Earnings to Fixed Charges... 5
Description of Debt Securities....... 5
Description of Common Stock.......... 14
Plan of Distribution................. 15
Legal Matters........................ 16
Experts.............................. 16
</TABLE>
$100,000,000
FINANCIAL SECURITY
ASSURANCE HOLDINGS LTD.
6.950% Senior Quarterly
Income Debt Securities
due 2098
(Senior QUIDS-SM-)
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[LOGO]
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GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
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