8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  August 6, 2007

Financial Security Assurance Holdings Ltd.
(Exact name of registrant as specified in its charter)

New York	1-12644	13-3261323
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of incorporation)		Identification No.)

31 West 52nd Street, New York, NY	10019
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (212) 826-0100

Not applicable.
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 420.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.              Results of Operations and Financial Condition.

(a)  On August 6, 2007, Financial Security Assurance Holdings Ltd. (the “Company”) issued a press release announcing its second quarter 2007 results and posted the press release to its website, http://www.fsa.com.  A copy of the press release is furnished herewith as Exhibit 99.1.

On August 6, 2007, the Company also posted to its website a quarterly letter from its Chairman and Chief Executive Officer.  A copy of that document, entitled “FSA Quarterly Letter from Robert P. Cochran, Chairman and Chief Executive Officer,” is furnished herewith as Exhibit 99.2.

Item 9.01.              Financial Statements and Exhibits.

(c)  Exhibits.

No.	Exhibit
99.1	Financial Security Assurance Holdings Ltd. press release dated August 6, 2007.
99.2	FSA Quarterly Letter dated August 6, 2007 from Robert P. Cochran, Chairman and Chief Executive Officer of Financial Security Assurance Holdings Ltd.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FINANCIAL SECURITY ASSURANCE
	HOLDINGS LTD.
Date: August 6, 2007	By:	/s/ Bruce E. Stern
		Name:	Bruce E. Stern
		Title:	General Counsel and Managing Director

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EXHIBIT INDEX

No.	Exhibit
99.1	Financial Security Assurance Holdings Ltd. press release dated August 6, 2007.
99.2	FSA Quarterly Letter dated August 6, 2007 from Robert P. Cochran, Chairman and Chief Executive Officer of Financial Security Assurance Holdings Ltd.

EX-99.1

Exhibit 99.1

	News Release
CONTACTS:		PRESS RELATIONS
		BETSY CASTENIR
		(212) 339-3424
FOR IMMEDIATE RELEASE
		INVESTOR RELATIONS
		ROBERT TUCKER
		(212) 339-0861

FSA HOLDINGS SECOND QUARTER 2007 RESULTS

NET INCOME

$63 Million in Q2 07 (-43% vs. Q2 06)

$148 Million in 6M 07 (-38% vs. 6M 06)

ORIGINATIONS (PRESENT VALUE)

$218 Million in Q2 07 (-27% vs. Q2 06)

$415 Million in 6M 07 (-2% vs. 6M 06)

New York, New York, August 6, 2007 — Financial Security Assurance Holdings Ltd. (the Company), a member of the Dexia group and the holding company for bond insurer Financial Security Assurance Inc. (FSA), announced second quarter 2007 net income of $62.8 million, 42.7% lower than for the comparable period of 2006 due to the effects of fair-value adjustments for economic interest rate hedges and investment-grade insured derivatives.  Operating earnings, a non-GAAP measure that excludes those effects, rose 8.6% to $99.6 million.

NET INCOME AND RECONCILIATION TO NON-GAAP OPERATING EARNINGS

(in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Net Income	$	62.8		$	109.7		$	148.0		$	239.9
Less fair-value adjustments for economic interest rate hedges (1)	(7.2		)	20.1			(7.2		)	43.7
Less fair-value adjustments for investment-grade insured derivatives (1)	(29.6		)	(2.1		)	(38.2		)	16.9
Operating Earnings (1)	$	99.6		$	91.7		$	193.4		$	179.3

(1) For a discussion of operating earnings and the adjustments made to net income in calculating operating earnings, see below, “Analysis of Financial Results – Operating Earnings.” Also see “Non-GAAP Measures” below for a discussion of measures not promulgated in accordance with accounting principles generally accepted in the United States of America (GAAP).

Shareholders’ equity (book value) was $2.7 billion and non-GAAP adjusted book value (ABV) was $4.1 billion at June 30, 2007.  Over the past 12 months, after taking dividends into account, ABV grew 14.6%.  See “Non-GAAP Measures” below for a more detailed discussion of ABV and a reconciliation to U.S. GAAP shareholders’ equity.  The Company’s management considers ABV to be an operating measure of the Company’s intrinsic value and discloses ABV

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because it provides information important to management that would not be available to investors through GAAP disclosure alone.

Present value (PV) originations, a non-GAAP measure, totaled $217.9 million for the second quarter of 2007, 27.0% lower than for last year’s comparable period.  Comparing six-month results of 2007 and 2006, PV originations declined 2.3% to $415.4 million.

Robert P. Cochran, chairman and chief executive officer of the Company and FSA, said:  “Despite strong growth in our asset-backed business, FSA’s total first-half originations fell slightly behind those of the comparable period in 2006.  This was due primarily to the lengthy process of closing transactions in the international public infrastructure market. In the highly competitive U.S. municipal market, we maintained our focus on high-quality issues in core sectors that provide greater relative value.

“Operating earnings rose 8.6%. However, net income declined because of fair-value adjustments primarily due to widening credit spreads for our highly rated insured credit default swaps. In prior periods, we have had significant positive marks, which we have consistently excluded from operating earnings.  The sum of these fluctuations is expected to return to zero when the contracts mature.

“It is also important to emphasize that we remain comfortable with our exposure to subprime mortgages. Our subprime mortgage insured portfolio is generally performing well. In fact, we believe this current market turmoil combined with credit spread widening will have a positive impact on our new business opportunities going forward.”  For additional information on the subprime mortgage insured portfolio, see Investor Presentations and Information on FSA’s website at www.fsa.com.

BUSINESS PRODUCTION

TOTAL ORIGINATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Gross par insured (in billions)	$	26.1	$	26.0	$	55.8	$	42.8
Gross PV originations (in millions) (1)	217.9		298.5		415.4		425.0

(1) Estimated by the Company for business originated in the period as the sum of (a) the present value of premiums originated (PV premiums originated), defined as estimated future installment premiums discounted to their present value, as well as upfront premiums, plus (b) the present value of net interest margin originated (PV NIM originated) in the financial products segment, defined as estimated interest to be received on investments less estimated transaction expenses and interest to be paid on liabilities plus results from derivatives used for hedging purposes, discounted to present value. The discount rate was 4.86% for 2007 originations and 5.07% for 2006 originations. PV premiums originated, PV NIM originated and PV originations are non-GAAP measures based on estimates of, among other things, prepayment speeds of asset-backed securities. Additionally, PV premiums originated is a measure of gross origination activity and does not reflect premiums ceded to reinsurers or the cost of credit default swaps or other credit protection, which may be considerable, employed by the Company to manage its credit exposures. Management believes that, by disclosing the components of PV originations in addition to premiums written, the Company provides investors with a more comprehensive description of its new business activity in a given period. For further discussion, see “Non-GAAP Measures” below. For a reconciliation of PV premiums originated to gross premiums written, see “Analysis of Financial Results – Premiums” below.

Unless otherwise noted, percentage changes mentioned in this release compare the period named with the comparable period of the previous year.

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PUBLIC FINANCE ORIGINATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
United States:
Gross par insured (in billions)	$	12.0	$	12.9	$	26.3	$	20.2
Gross PV premiums originated (in millions)	77.4		112.3		151.4		166.6
International:
Gross par insured (in billions)	$	1.7	$	2.9	$	2.6	$	4.5
Gross PV premiums originated (in millions)	39.0		110.2		55.7		138.4

First-half estimated municipal market volume of $230.3 billion was 28% higher than in the first half of 2006, largely due to refundings.  However, the pace of refundings slowed late in the second quarter due to a significant rise in interest rates.  Insurance penetration during the first six months was approximately 48%, compared with 50% in last year’s comparable period.  FSA insured approximately 22% of the par amount of insured new municipal bond issues sold year-to-date.

Including both primary and secondary U.S. public finance obligations with closing dates in the second quarter, the par amount insured by FSA declined 6.5%, and PV premiums originated declined 31.1%. The decline in PV premium production was related primarily to decreases in health care and other high-premium types of transactions.  For the first half, public finance par insured increased 30.1%, while PV premiums originated declined 9.1% due to the focus on higher-quality core sectors.

In primary and secondary international public finance markets during the second quarter, FSA insured U.K. and Australian utility financings, an Italian health care receivable securitization and transportation and municipal bond issues in Japan.  Par originated declined 42.4%, and PV premiums originated declined 64.6%.  Results in this sector tend to be irregular because of the timing of large, high-premium transactions with long development times.  For the first six months, international public finance par insured declined 42.5%, and PV premiums originated declined 59.8%. FSA has mandates to guarantee major infrastructure financings scheduled to close later this year.

ASSET-BACKED ORIGINATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
United States:
Gross par insured (in billions)	$	9.9	$	8.9	$	22.3	$	13.2
Gross PV premiums originated (in millions)	64.6		27.2		129.0		53.1
International:
Gross par insured (in billions)	$	2.5	$	1.3	$	4.6	$	4.9
Gross PV premiums originated (in millions)	14.2		10.5		29.8		13.6

FSA increased its second-quarter U.S. asset-backed production by 10.0% in par originated and 136.9% in PV premiums originated.  As in the first quarter, the business was primarily focused on the pooled corporate and residential mortgage sectors, where FSA found opportunities at attractive pricing levels in a widening spread environment.  Additionally, transactions closed in

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the second quarter had longer average lives, which will contribute to stability of future earnings.  For the first half, FSA increased U.S. asset-backed par insured 68.7%, and PV premiums originated 142.9%.

Outside the United States, FSA’s asset-backed par insured increased 95.5%, and PV premiums originated increased 34.2% for the second quarter.  PV premiums did not increase as much as par insured because, in last year’s second quarter, FSA guaranteed two high-premium diversified payment rights transactions.  In the second quarter of this year, FSA guaranteed multinational collateralized debt obligations, U.K. residential mortgage transactions and Japanese and Canadian consumer finance securitizations.  For the first half, FSA produced 119.5% more international asset-backed PV premiums despite a 6.2% decline in par insured.  As in the United States, FSA found more attractively priced pooled corporate opportunities with generally longer average lives.

FINANCIAL PRODUCTS ORIGINATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Gross PV NIM originated (in millions)	$	22.7	$	38.3	$	49.5	$	53.3

In the financial products (FP) segment, PV NIM originated decreased 40.4% for the second quarter, reflecting shorter average lives of new investments.  The Company continued to invest conservatively in the mortgage-backed sector, focusing on Triple-A tranches, and it was able to further reduce portfolio risk by investing in shorter term Triple-A mortgage-backed securities, for which spreads had widened.   PV NIM declined 6.9% for the first half.

ANALYSIS OF FINANCIAL RESULTS

NET INCOME. Second-quarter net income decreased 42.7% to $62.8 million from $109.7 million for the second quarter of last year due to the effects of the fair-value adjustments discussed below under “Operating Earnings.”   For the same reason, first-half net income decreased 38.3% to $148.0 million.   The fair-value adjustments for economic interest rate hedges in the second quarter include a $7.4 million after-tax gain representing previously unreported amortization of fair-value adjustments related to debt of a consolidated variable interest entity.

OPERATING EARNINGS.   Operating earnings (a non-GAAP measure) and the adjustments to net income used to calculate it are disclosed above, in the table entitled “Net Income and Reconciliation to Non-GAAP Operating Earnings.”  The Company defines operating earnings as net income before the effects of fair-value adjustments for:

·economic interest rate hedges, defined as derivatives that are intended to hedge interest rate risk but do not meet the criteria necessary to receive hedge accounting treatment under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), with any residual hedge ineffectiveness remaining in operating earnings; and

·investment-grade insured derivatives, which are certain contracts for which fair-value adjustments are recorded through the income statement because they qualify as derivatives under SFAS 133 or Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (SFAS 155). These contracts include FSA-insured

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credit default swaps (CDS), insured swaps in certain public finance obligations and insured net interest margin (NIM) securitizations.

The Company typically converts the fixed interest rates of certain assets and liabilities to dollar-denominated LIBOR-based floating rates by means of interest rate derivatives. Without hedge accounting, SFAS 133 requires the marking to fair value of each such derivative in the income statement without the offsetting mark to fair value on the asset or liability it is intended to hedge. These one-sided mark-to-fair-value valuations cause income volatility.  Under the Company’s definition of operating earnings, the economic effect of these hedges is recognized, which, for interest rate swaps, generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item’s life.  The fair-value adjustments for economic interest rate hedges reflect the cost of replacement and the effect of movements of LIBOR-based interest rates.

Insured derivatives are transactions that are insured by the Company in the normal course of business and, for accounting purposes, qualify as derivatives under SFAS 133 or SFAS 155. A large majority of these derivatives are CDS, which are generally non-cancelable prior to maturity, and the Company views insured CDS risks as comparable to other insured risks.  CDS transactions insured by the Company generally reference either a specific security otherwise qualifying for FSA insurance or a pool of corporate or consumer debt securities or bank loans, structured such that the risk insured is investment grade without the benefit of the credit protection provided by the Company.  In the event a CDS were to migrate below investment grade, the fair-value impact would be fully reflected in operating earnings.  Given the high credit quality of the CDS insured by FSA, management believes it is probable that the financial impact of the fair-value adjustments for the insured CDS will sum to zero over the finite terms of the exposures, which are typically five to ten years at inception.  Notwithstanding this eventual outcome, sharp swings in the estimated fair value of the CDS portfolio may occur from quarter to quarter, as the credit spreads that drive the fair-value estimates are volatile.

For the second quarter of 2007, the fair-value adjustments for investment-grade insured derivatives reflected primarily significant widening of credit spreads. No material credit deterioration was observed in FSA-insured derivatives.

For the first six months of 2007, the fair-value adjustments for investment-grade insured derivatives reflected significant widening of credit spreads and the normal reversal of accumulated fair-value gains as individual underlying contracts move closer to maturity.  No material credit deterioration was observed in FSA-insured derivatives.

PREMIUMS. The following table reconciles gross premiums written, which captures premiums collected and accrued for in the period regardless of when the related business was originated, to PV premiums originated, a non-GAAP measure that management uses to evaluate current business production.

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RECONCILIATION OF GROSS PREMIUMS WRITTEN TO PV PREMIUMS ORIGINATED

(in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Gross premiums written	$	172.7		$	241.6		$	322.1		$	367.7
Gross installment premiums received	(66.0		)	(61.2		)	(127.9		)	(116.5		)
Gross upfront premiums originated	106.7			180.4			194.2			251.2
Gross PV estimated installment premiums originated	88.5			79.8			171.7			120.5
Gross PV premiums originated	$	195.2		$	260.2		$	365.9		$	371.7

The following table summarizes earned and written premiums, net of reinsurance.

NET EARNED AND WRITTEN PREMIUMS

(in millions)

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net premiums written	$	111.7	$	151.0	$	211.9	$	239.7
Net premiums earned	106.0		98.5		205.0		193.0
Net premiums earned excluding effect of refundings and accelerations	91.4		84.3		175.4		169.7

For the second quarter, gross premiums written decreased 28.5%, and net premiums written decreased 26.0%. For the first six months, gross premiums written decreased 12.4%, and net premiums written decreased 11.6%.  In each case, the change reflected a decrease in public finance premiums written, partially offset by an increase in asset-backed premiums written.

Second-quarter net premiums earned totaled $106.0 million, a 7.7% increase.  This includes $14.6 million of net premiums earned from refundings and accelerations, compared with $14.2 million for the second quarter of 2006.  Excluding premiums from refundings and accelerations, second-quarter net premiums earned increased 8.5%, primarily reflecting increases in both public finance and asset-backed earned premiums. The asset-backed earned premiums increase was driven primarily by premium supplements.

For the first six months, net premiums earned totaled $205.0 million, a 6.3% increase.  This includes $29.6 million of net premiums earned from refundings and accelerations, compared with $23.3 million for last year’s comparable period.  Excluding premiums from refundings and accelerations, first-half net premiums earned increased 3.4%, primarily reflecting increases in both public finance and asset-backed earned premiums.

FP SEGMENT NET INTEREST MARGIN.  FP Segment NIM was $25.8 million for the second quarter of 2007 and $50.4 million for the first six months, compared with last year’s results of $17.2 million for the second quarter and $36.7 million for the first six months. The increases reflected primarily portfolio growth in the guaranteed investment contract business and capital gains.  FP Segment NIM is a non-GAAP measure defined as the net interest margin from the financial products segment excluding fair-value adjustments for economic interest rate hedges.

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INVESTMENT PORTFOLIO. Second-quarter net investment income increased to $58.1 million from $53.3 million a year ago. For the first six months, net investment income increased to $115.8 million from $106.3 million in last year’s comparable period.  The increases primarily reflect higher invested balances in the investment portfolio.  The Company’s effective tax rate on investment income (excluding the effects of realized gains and losses, the FP Segment and assets acquired in refinancing transactions) was 12.3% year to date, versus 13.4% for last year’s comparable period.

EXPENSES.

EXPENSES AND POLICY ACQUISITION COSTS

(in millions)

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Other operating expenses and policy acquisition costs (1)	$	56.8	$	34.4	$	103.0	$	81.9
Other operating expenses and policy acquisition costs, excluding deferred compensation plans (DCP) and supplemental executive retirement (SERP) plans	49.6		40.6		93.6		82.2

(1) These expenses include certain compensation expenses related primarily to the Company’s DCP and SERP plans, which are based on changes in the market value of related investments and are perfectly offset by amounts in other income arising from marking to fair value the assets held to economically defease such obligations.

Excluding DCP and SERP plans, policy acquisition and other operating expenses increased by $9.0 million, or 22.0%, for the second quarter of 2007 from last year’s second quarter.  For the first six months, those expenses increased by $11.4 million, or 13.8%. The increases relate primarily to higher compensation expenses and a lower deferral rate.

RESERVES. The Company recorded losses and loss adjustment expenses incurred of $4.7 million for the second quarter of 2007 and $7.9 million for the second quarter of 2006.  Year to date, losses and loss adjustment expenses totaled $9.1 million for the first six months of 2007 and $11.2 million for the first six months of 2006.  The decreases are driven primarily by an increase in higher rated transactions, which require lower reserves. Adjustments to reserves represent management’s estimate of the amount required to cover the present value of the net cost of claims, based on statistical provisions for new originations.

During the second quarter of 2007, a net amount of $1.9 million was transferred from case reserves to the non-specific reserve, primarily reflecting a decrease in existing case reserves for certain collateralized debt obligations, partially offset by an increase in the case reserve for a health care transaction. Transfers between non-specific and case reserves represent a reallocation of existing loss reserves and have no impact on earnings. At June 30, 2007, aggregate case and non-specific reserves, net of reinsurance recoverables, totaled $199.1 million, compared with $190.8 million at December 31, 2006.

NON-GAAP MEASURES

To reflect accurately how the Company’s management evaluates the Company’s operations and progress toward long-term goals, this release contains both measures promulgated in accordance

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with accounting principles generally accepted in the United States of America (GAAP measures) and measures not so promulgated (non-GAAP measures).  Although the measures identified as non-GAAP in this release should not be considered substitutes for GAAP measures, management considers them key performance indicators and employs them in determining compensation.  Non-GAAP measures therefore provide investors with important information about the way management analyzes its business and rewards performance.

Non-GAAP measures used in this release include ABV, operating earnings, PV premiums originated, PV NIM originated, PV originations and FP segment NIM.  In the tables above, operating earnings is reconciled to net income, and PV premiums originated is reconciled to gross premiums written.  PV NIM originated is the present value of estimated future net interest margin generated by new business in the financial products segment during a given period, adjusted for management’s estimate of transaction and hedging costs. At the beginning of 2007, based on experience, management reduced its estimate of the adverse effect of such costs, and appropriate adjustments were included in the estimates of 2007 PV NIM originated and the PV future net interest margin (PV future NIM) component of ABV.  PV originations is the sum of PV premiums originated and PV NIM originated.  The Company employs PV originations to describe the present value of all the Company’s originations in a given period.

Management uses ABV as a measure of performance and to calculate a portion of employee compensation.  An investor attempting to evaluate the Company using GAAP measures alone would not have the benefit of this information. The ABV calculation relies on estimates of the amount and timing of installment premiums and net interest margin and applies discount factors to determine the present value. Actual values may vary from the estimates. As of December 31, 2006, the Company began to calculate ABV on the basis of International Financial Reporting Standards (IFRS) results that the Company reports to its principal shareholder, Dexia S.A., in order to better align the interests of employees with the interests of Dexia S.A., whose accounts are maintained under IFRS.  The IFRS adjustments relate primarily to accounting for foreign exchange, contingencies and fair-value adjustments.   ABV is reconciled to book value in the table that follows.

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RECONCILIATION OF US GAAP SHAREHOLDERS’ EQUITY TO
ADJUSTED BOOK VALUE (IFRS BASIS)

(in millions)

	June 30,  2007		December 31, 2006
Shareholders’ Equity (Book Value) – U.S. GAAP	$	2,686.0	$	2,722.3
After-tax adjustments:
Plus net unearned premium revenues (net of taxes of $579.3 and $576.9)	1,075.9		1,071.4
Plus PV future net installment premiums and financial products PV future net interest margin (net of taxes of $377.6 and $337.7) (1)(2)	701.3		627.2
Less net deferred acquisition costs (net of taxes of $121.3 and $119.2)	225.3		221.4
Less fair-value adjustments for investment-grade insured derivatives (net of taxes of $10.6 and $31.2)	19.8		58.0
Less fair value of economic interest rate hedges (net of taxes of $11.2 and $39.1)	20.8		72.6
Less unrealized gains on investments (net of taxes of $38.8 and $83.4)	72.0		154.9
Adjusted Book Value before IFRS adjustments	4,125.3		3,914.0
IFRS Adjustments	4.7		4.8
Adjusted Book Value (IFRS basis)	$	4,130.0	$	3,918.8

(1)Amounts include the effects of PV future ceding commission and premium taxes. The discount rate varies according to the year of origination. For each year’s originations, the Company calculates the discount rate as the average pre-tax yield on its investment portfolio for the previous three years. The rate was 4.86% for 2007 and 5.07% for 2006.

(2)At the beginning of 2007, based on experience, management applied a reduced estimate of transaction and hedging costs to financial products PV future NIM. This increased June 30, 2007 PV future NIM by approximately $24 million.

This release also contains certain other non-GAAP measures that are based on statutory accounting principles applicable to insurance companies.  Management uses such measures because the measures are required by regulators or used by rating agencies to assess the capital adequacy of the Company.  The following table presents statutory-basis information for FSA.

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CLAIMS-PAYING RESOURCES (STATUTORY BASIS)
FINANCIAL SECURITY ASSURANCE INC. AND SUBSIDIARIES

(dollars in thousands)

	June 30, 2007		December 31, 2006
Contingency Reserve	$	1,160,303	$	1,011,034
Surplus to Policyholders	1,482,309		1,543,113
Qualified Statutory Capital	2,642,612		2,554,147
Net Unearned Premium Reserve	2,116,401		2,070,751
Loss and Loss Adjustment Expense Reserve	53,712		52,964
Qualified Statutory Capital and Reserves	4,812,725		4,677,862
Net Present Value of Installment Premiums	894,458		827,916
Third-Party Capital Support (1)	550,000		550,000
Total Claims-Paying Resources (2)	$	6,257,183	$	6,055,778
Net Insurance in Force (principal & interest)	$	576,405,441	$	552,695,033
Capital Ratio (3)	218:1		216:1
Claims-Paying Ratio (4)	92:1		91:1

(1)Standby line of credit facility and money market committed preferred trust securities.

(2)Total claims-paying resources is a term used by rating agencies to quantify total resources available to pay claims in their stress-case scenarios.  Rating agencies may apply further adjustments to some or all of the figures in order to reflect their views of realization.

(3)Capital ratio is net insurance in force divided by qualified statutory capital.

(4)Claims-paying ratio is net insurance in force divided by claims-paying resources.

ADDITIONAL INFORMATION

The Company plans to post its latest Operating Supplement to its website, www.fsa.com, this week.  The Operating Supplement contains additional information about results for the period covered in this release.

FORWARD-LOOKING STATEMENTS

The Company relies on the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. This safe harbor requires that the Company specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. Accordingly, forward-looking statements by the Company and its affiliates are qualified by reference to the following cautionary statements.

In its filings with the SEC, reports to shareholders, press releases and other written and oral communications, the Company from time to time makes forward-looking statements. Such forward-looking statements include, but are not limited to:

·projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;

·statements of plans, objectives or goals of the Company or its management, including those related to growth in adjusted book value or return on equity; and

·expected losses on, and adequacy of loss reserves for, insured transactions.

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Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

The Company cautions that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in forward-looking statements made by the Company. These factors include:

·changes in capital requirements or other criteria of securities rating agencies applicable to FSA;

·competitive forces, including the conduct of other financial guaranty insurers;

·changes in domestic or foreign laws or regulations applicable to the Company, its competitors or its clients;

·changes in accounting principles or practices that may result in a decline in securitization transactions or affect the Company’s reported financial results;

·an economic downturn or other economic conditions (such as a rising interest rate environment) adversely affecting transactions insured by FSA or its investment portfolio;

·inadequacy of reserves established by the Company for losses and loss adjustment expenses;

·disruptions in cash flow on FSA-insured structured transactions attributable to legal challenges to such structures;

·downgrade or default of one or more of FSA’s reinsurers;

·market conditions, including the credit quality and market pricing of securities issued;

·capacity limitations that may impair investor appetite for FSA-insured obligations;

·market spreads and pricing on insured CDS exposures, which may result in gain or loss due to mark-to-market accounting requirements;

·prepayment speeds on FSA-insured asset-backed securities and other factors that may influence the amount of installment premiums paid to FSA; and

·other factors, most of which are beyond the Company’s control.

The Company cautions that the foregoing list of important factors is not exhaustive. In any event, such forward-looking statements made by the Company speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise such statements as a result of new information, future events or otherwise.

THE COMPANY

Financial Security Assurance Holdings Ltd. (the Company), headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial products to clients in both the public and private sectors around the world. The principal operating subsidiary, Financial Security Assurance Inc. (FSA), a leading guarantor of public finance and asset-backed obligations, has been assigned Triple-A ratings, the highest ratings available, from Fitch Ratings, Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Rating and Investment Information, Inc. Through other subsidiaries, the Company provides FSA-insured financial products, such as guaranteed investment contracts, to obtain funds at Triple-A cost and then invests those funds in high-quality, liquid securities.  The Company is a member of the Dexia group.

11

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)

	June 30, 2007			December 31, 2006
ASSETS
General investment portfolio:
Bonds at fair value (amortized cost of $4,579,549 and $4,546,147)	$	4,662,708		$	4,721,512
Equity securities at fair value (cost of $39,316 and $54,291)	39,380			54,325
Short-term investments (cost of $126,913 and $96,055)	128,253			96,578
Financial products segment investment portfolio:
Bonds at fair value (amortized cost of $18,013,847 and $16,692,183)	17,980,660			16,757,979
Short-term investments	850,585			659,704
Trading portfolio at fair value	342,149			119,424
Assets acquired in refinancing transactions:
Bonds at fair value (amortized cost of $26,483 and $40,133)	28,012			41,051
Securitized loans	201,577			241,785
Other	50,346			55,036
Total investment portfolio	24,283,670			22,747,394
Cash	48,995			32,471
Deferred acquisition costs	346,618			340,673
Prepaid reinsurance premiums	1,027,984			1,004,987
Reinsurance recoverable on unpaid losses	39,834			37,342
Other assets	1,243,591			1,610,759
TOTAL ASSETS	$	26,990,692		$	25,773,626
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
Deferred premium revenue	$	2,683,201		$	2,653,321
Losses and loss adjustment expenses	238,975			228,122
Financial products segment debt	19,384,688			18,349,665
Deferred federal income taxes	225,832			298,542
Notes payable	730,000			730,000
Accrued expenses, other liabilities and minority interest	1,041,969			791,664
TOTAL LIABILITIES AND MINORITY INTEREST	24,304,665			23,051,314
COMMITMENTS AND CONTINGENCIES
Common stock (200,000,000 shares authorized; 33,517,995 issued; par value of $.01 per share)	335			335
Additional paid-in capital—common	906,687			906,687
Accumulated other comprehensive income (net of deferred income taxes of $19,723 and $86,119)	36,732			160,038
Accumulated earnings	1,742,273			1,655,252
Deferred equity compensation	19,225			19,225
Less treasury stock at cost (241,978 shares held)	(19,225		)	(19,225		)
TOTAL SHAREHOLDERS’ EQUITY	2,686,027			2,722,312
TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY	$	26,990,692		$	25,773,626

See Notes to Consolidated Financial Statements to be filed on Form 10-Q.

12

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)
(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
REVENUES
Net premiums written	$	111,715		$	150,996		$	211,915		$	239,728
Net premiums earned	$	106,021		$	98,461		$	205,033		$	192,957
Net investment income	58,117			53,254			115,826			106,300
Net realized gains (losses)	(1,903		)	(3,636		)	(2,058		)	(4,554		)
Net interest income from financial products segment	270,241			207,522			517,919			383,811
Net realized gains (losses) from financial products segment	1,208			—			1,742			77
Net realized and unrealized gains (losses) on derivative instruments	(44,534		)	74,759			(26,163		)	132,584
Income from assets acquired in refinancing transactions	5,464			6,126			11,316			13,107
Net realized gains (losses) from assets acquired in refinancing transactions	44			(171		)	313			541
Other income	15,631			1,028			21,190			8,376
TOTAL REVENUES	410,289			437,343			845,118			833,199
EXPENSES
Losses and loss adjustment expenses	4,678			7,899			9,068			11,184
Interest expense	11,584			6,748			23,168			13,496
Policy acquisition costs	18,055			14,421			34,006			30,631
Foreign exchange (gains) losses from financial products segment	13,149			75,800			30,653			111,985
Net interest expense from financial products segment	248,441			180,983			490,124			336,643
Other operating expenses	38,760			19,967			69,022			51,271
TOTAL EXPENSES	334,667			305,818			656,041			555,210
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST	75,622			131,525			189,077			277,989
Provision (benefit) for income taxes	12,795			36,286			41,054			90,070
NET INCOME BEFORE MINORITY INTEREST	62,827			95,239			148,023			187,919
Less: Minority interest	—			(14,481		)	—			(52,006		)
NET INCOME	62,827			109,720			148,023			239,925
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) arising during the period, net of deferred income tax provision (benefit) of $(51,990), $(25,312), $(64,329) and $(59,598)	(96,554		)	(46,400		)	(119,468		)	(110,579		)
Less: reclassification adjustment for gains (losses) included in net income, net of deferred income tax provision (benefit) of $1,739, $(1,175), $2,067 and $(1,487)	3,228			(2,182		)	3,838			(2,761		)
Other comprehensive income (loss)	(99,782		)	(44,218		)	(123,306		)	(107,818		)
COMPREHENSIVE INCOME (LOSS)	$	(36,955	)	$	65,502		$	24,717		$	132,107

See Notes to Consolidated Financial Statements to be filed on Form 10-Q.

13

EX-99.2

Exhibit 99.2

FSA Quarterly Letter

from Robert P. Cochran, Chairman and Chief Executive Officer

August 6, 2007

Though first-half originations lagged slightly behind those of the same period in 2006, we are optimistic about performance for 2007. The decrease in originations was primarily due to the length of time required to reach closings in our pipeline of international public infrastructure transactions, and we are seeing greater opportunities in our asset-backed business based on demand for our guaranty and widening credit spreads. Importantly, FSA has not been negatively affected by the crisis in the subprime mortgage-backed (RMBS) market, as we have consistently limited our direct participation to high-quality tranches of RMBS and had significantly cut back production in the poor cohort years of 2005 and 2006. In fact, the current situation has underscored the value of our Triple-A guaranty and should lead to attractive opportunities in the months ahead.

First-half present value (PV) originations totaled $415.4 million, down 2.3% from that of the same period in 2006, and operating earnings, which exclude fair-value adjustments for both investment-grade insured derivatives and economic interest rate hedges, rose 7.8% to $193.4 million.  Net income for the first six months was $148.0 million, a 38.3% decline from that of the first half of 2006, because of fair-value adjustments due primarily to widening credit spreads in super-senior credit default swaps (CDS) referencing pools of high-yield and investment-grade corporate names. In prior periods, we have had significant positive marks, which we have consistently excluded from operating income. The sum of these fluctuations is expected to return to zero when the contracts mature.

U.S. public finance: first-half municipal market volume up, but market remains highly competitive

Total issuance in the U.S. municipal bond market reached $230.3 billion, 28% higher than for the last year’s first half, largely due to refundings. However, the pace of refundings slowed late in the second quarter due to an increase in interest rates. Insurance penetration during the first half was approximately 48%, compared with 50% in last year’s first half. We insured approximately 22% of the par amount of insured new municipal bond issues sold year-to-date.

FSA originated an insured gross par amount of $26.3 billion of U.S. municipal bonds in the first half of 2007, an increase of 30.1% over that of the comparable period last year. This generated $151.4 million of PV premiums, which represents a decrease of 9.1% from the first-half result last year. The decrease was due primarily to our focus on higher-quality core sectors. While this remains a challenging market, we expect to hold our own and see strong potential in the project finance sector.

International public finance: lower volume for first half but a strong pipeline going forward

In international public finance, first-half gross par insured was $2.6 billion, and PV premiums totaled $55.7 million, decreases of 42.5% and 59.8%, respectively.  This is a business that demands patience, as originations tend to be lumpy based on the lengthy process required to close these transactions.

With respect to the high-profile difficulties of Metronet, the London Underground Infrastructure Company that recently filed for PPP Administration, we do not expect to have an immediate policy claim or a material loss on the FSA-insured bonds.  FSA insures two series of bonds — £185 million gross (£90 million net) index-linked senior secured Metronet Rail BCV Finance plc and £350 million gross (£170 million net) fixed rate senior secured Metronet Rail SSL Finance plc.  The debt was issued to finance the operation, maintenance and initial phase of asset upgrades to part of the London Underground.

The transactions have substantial liquidity resources to meet current debt service, and under the applicable service contracts, insured debt holders and bond insurers benefit from an “underpinned amount” generally providing that 95% of insured debt will be supported by London Underground Limited if Metronet is unable to meet its obligations.

U.S. asset-backed business: strong momentum continued through second quarter

First-half U.S. asset-backed gross par insured was $22.3 billion, an increase of 68.7% over last year’s comparable period, and PV premiums were $129.0 million, an increase of 142.9%. The business was primarily focused on the pooled corporate and residential mortgage-backed sectors, where we found opportunities to insure high-quality transactions at attractive pricing levels in the widening spread environment. (New mortgage-backed originations in the second quarter included Triple-A tranches of prime and subprime mortgage securitizations, net interest margin securitizations and home equity line of credit securitizations.) Additionally, transactions closed year-to-date had longer average lives, which should contribute to the stability of future earnings.

Further detail on our exposure to the subprime mortgage sector: our total net par exposure directly to the U.S. subprime residential mortgage market was $4.2 billion at June 30, 2007, representing 1.1% of FSA’s total net par outstanding. The insured portfolio is performing well. (A fuller discussion of our subprime market exposure, including exposure through a small par amount of insured collateralized debt obligations and through the financial products business and our investment portfolio, is available on our web site, www.fsa.com.)

International asset-backed market: business continues to be focused primarily on pooled corporate transactions

For the first half, FSA insured a gross par amount of $4.6 billion of international asset-backed transactions, a 6.2% decline from that of the comparable period last year.  This generated $29.8 million of PV premiums, an increase of 119.5% half over half. As in the United States, FSA found more attractively priced pooled corporate obligations with generally longer average lives.

We also guaranteed a number of transactions across the asset-backed spectrum in diverse geographic areas.

Financial Products: a good contribution to earnings

In the financial products (FP) segment, PV net interest margin (NIM) originated declined 6.9% to $49.5 million for the first half of 2007 versus the same period last year. The decline in PV NIM primarily reflected new investments in Triple-A mortgage securities with shorter average lives, which reduced portfolio risk.  FP segment NIM for the first half of 2007 was $50.4 million.

S&P issues confirmation of FSA’s Triple-A financial strength

In mid-June, S&P issued its latest report affirming FSA’s Triple-A claims-paying rating based on our “conservative underwriting and risk-management standards,” which have “led to an insured book of business with a below-average risk profile.” The report goes on to note that “capital resources when measured against this risk are strong” and that “with respect to the volatility in the subprime mortgage market, FSA has done a solid job of managing this risk.”  (The report is available on our web site.)

Prospects going forward

With balanced capabilities across our markets and a strong capital base, we are in a good position to take advantage of expanding opportunities in a changing credit market. As we see where all of this leads, we will continue to adhere to conservative underwriting standards. Our priorities remain the same: to maintain the strongest Triple-A ratings, create value for issuers and investors and achieve attractive financial results for our shareholders.

Sincerely,

Robert P. Cochran

Please refer to the accompanying earnings release for definitions of non-GAAP terms used in this letter and reconciliations of operating earnings to net income, adjusted book value to shareholders’ equity, and PV premiums originated to gross premiums written.  This document contains forward-looking statements regarding, among other things, the Company’s plans and prospects.  Important factors, including general market conditions and the competitive environment, could cause actual results to differ materially from those described in such forward-looking statements.  Certain of these factors are described in more detail under the heading “Forward-Looking Statements” in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.  Forward-looking statements in this letter are expressly qualified by all such factors.  The Company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations or otherwise.