ACA Capital Holdings, Inc. (NYSE:ACA) is a company in trouble.  A stock screen yields the results that the company trades significantly under book value, but your name would have to be Dr. Pangloss to believe that this was anywhere close to the real balance sheet as of today.  As of March 31, 2007, the company’s net tangible book value was listed as $424.6 million.  Today’s market cap was listed as $240.9 million.  Shares closed down another 22% today at a new post-IPO low of $6.59 on more than 3.1 million shares.

Since the company listed nothing worth noting as goodwill on its balance sheet, you’d realize that there is ‘ill-will’ on the books.  This company has been public only since the end of 2006 and the last month for shareholders could only be described as fugly.

When you run stock screens, it is always interesting when a company stock shows up as 0.6-times stated book value.  But if the market is trading at all-time highs, you have to know better and you have to know that something may be wrong.  Because of the business segment this is in (financial guaranty insurance in credit derivatives, ouch), it is almost certainly safe to assume that the old book value is nowhere close to the situation today.  On June 29, the company withdrew its registration statement over a proposed 3.9+ million share offering from selling stockholders.

ACA Capital is a holding company that provides asset management services and credit protection products to participants in the global credit derivatives markets, structured finance capital markets and municipal finance capital markets.  If that isn’t the crummiest sector to be in right now, tell these guys to ask Bear Stearns (NYSE:BSC).  Bear Stearns is also a significant shareholder in the company.

The NYSE has a note that the company does not comment on unusual activity and my telephone call to Hyde Park Financial Communications was responded to with the answer that as of now that is all that will be coming out of the company.

With the obvious implosions in the CDO markets and in other credit derivatives, it is hard to know  what the real situation is.  There is either a significant risk to the company’s viability, or at some point there is significant value.  But if the company is keeping the media room dark then any investment into this is no different than flying blind.  This will have to be left to the speculators because from the eyes of a value-oriented focus this one is impossible to evaluate with data that is more than 90-days old.

Jon C. Ogg
July 16, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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