Russell Fraser, who helped develop the bond insurance industry, recently resigned as chairman of ACA Financial Guaranty Corp's board to spend more time on his Wyoming ranch. Fraser has worked in public finance for over 20 years, holding executive roles at various firms. While retiring from his board role, Fraser plans to remain a consultant for ACA and may serve on other bond-related boards. He reflects on his career developing bond insurance and ACA, noting mistakes made but that the company is now on good footing under new leadership. Fraser hopes to focus on running businesses in Wyoming, including a beef jerky company and tourist area showcasing the Old West.

1. Bond Insurers: Off to the Ranch, Fraser
Reflects on ACA's Past and Future.
The Bond Buyer
March 22, 2001 | Carpenter-Kasprzak, Sheri
• Permalink
"I guess I've always wanted to be a cowboy," said H. Russell Fraser, who recently announced his
resignation as chairman of ACA Financial Guaranty Corp.'s board of directors.
Indeed, upon walking into his office that looks out on the World Trade Center in New York City,
it is hard not to notice the Western motif, including cacti and chairs covered with cowhide.
The 59-year-old Fraser has worked in public finance as either chief operating officer or chief
executive officer for various firms for more than 20 years. Now, he is looking forward to
spending more time on his Wyoming ranch, the Double Diamond X, which he runs with his
wife, Patsy.
But Fraser, who some have regarded as a warhorse of the municipal bond industry, is not getting
out of the market completely. He plans to act as a consultant for ACA, and he may serve on
some bond-related boards.
"I don't want to work five days a week," he said, noting that he has been commuting almost
3,200 miles a week between his home in Cody to his office in New York. "This is the right time
to leave. You don't leave the ship when it's in trouble. The company has got the money now and
it has a new leadership. Michael Satz is a bright young man."
Satz, who took over as CEO when Fraser retired from that position in August of 2000, also will
chair ACA's board.
Fraser's resignation followed ACA's announcement that it has acquired $45 million in equity
capital from its existing investors and two new investors, Keystone Inc. and Banc of America
Securities Inc.
In March 2000, ACA announced that it was seeking additional capital after it lost a $75 million
reinsurance agreement with ACE Capital Re Bermuda. That agreement has since been replaced
by a similar-sized agreement with another ACE Ltd. subsidiary.
Also in March of last year, ACA announced that it was seeking between $40 million and $50
million in equity capital to appease rating agency requests. Standard & Poor's and Fitch
threatened a downgrade from AA to below investment grade if the company did not raise the
money by a self-imposed January 2001 deadline. ACA secured the investors at the end of
January.

2. Fraser, who comes from a family of dairy farmers, said he will focus on running some Wyoming
ventures, which include a beef jerky business called Wyoming Longhorn Beef and a tourist area
complete with antique buildings from the Old West and approximately 10,000 artifacts from that
era.
Although some industry players claim Fraser is the man responsible for "inventing" bond
insurance, he said he merely helped it develop.
After graduating from the University of Arizona, Fraser went to work for Philadelphia Life
Insurance Co. on the buy side of the bond market in the company's investment banking
department.
In January 1967, Fraser joined Standard & Poor's, where he rated municipal debt. He later rated
corporate bonds during the day and municipals at night. In January 1969, at just 28 years old,
Fraser took over the agency's corporate bond-rating branch.
In 1975, Fraser joined Paine Webber Jackson & Curtis -- now UBS PaineWebber Inc. -- where
he led the fixed-income research division, adding municipals to the firm's insurance research,
which had been limited to corporates.
In June 1980, after the nine-year-old Milwaukee-based Ambac Assurance Corp. received a AAA
rating from Standard & Poor's, Fraser joined the firm. At the time, Ambac had only 2% of the
bond insurance market.
Fraser encouraged the company to move to New York City, and it relocated in 1981.
Fraser said he helped revitalize Ambac, noting that the company did not have a down year after
1980.
This was in contrast to Ambac's parent company, Baldwin United, which went bankrupt in 1983,
and Fraser was given the job of finding a buyer.
Citicorp bought Ambac in 1985. The company continued to grow, but in 1989, Fraser resigned
due to disagreements with the parent company about how the insurer should be run.
Following his stint at Ambac, Fraser and Robert Van Kampen, then an Ambac customer, paid $5
million for Fitch IBCA, then a struggling bond rating agency. Thus began what Fraser called "the
biggest struggle of our lives."
In its first year, Fitch made $2.7 million in revenues, a little more than half of what Fraser and
Van Kampen had paid for it. It pulled in $7 million in 1990 and $15 million in 1991, Fraser said.
In 1996, Fraser left Fitch. In early 1997, the company was sold to Fimilac S.A., a French bank,
for $179 million.

3. In 1996, Fraser and Wayne Marsden, later a managing director at ACA, spent nine months
raising money to buy Connie Lee Insurance Co. But the company refused to sell, saying the price
was too low.
"We wanted to buy Connie Lee because we felt there was a market for lower-grade insured
bonds," Fraser said. "It would be easier to insure lower-grade bonds if they're not rated triple-A."
This philosophy persuaded Fraser to start ACA in September 1997.
"In hindsight, we made a few mistakes," he said. "We started out to raise $250 million in capital
and we shouldn't have settled for $160 million. The other mistake we made is that we should
have just stayed small and concentrated on municipals, but we tried structured and ran up our
expenses."
ACA, which now has the $250 million it was trying to raise when it started, is now on "good
footing to go forward," Fraser said.
"I think this industry is exciting," he said. "The future of the bond market is tremendous. The
only place municipal bond professionals are making a profit is in lower-grade bonds. The more
creative bond professionals will make the money."
Fraser said that although ACA is focusing more on structured finance, the company will stay
involved in municipals, noting that structured finance is a good place to grow.
A problem that many bond insurers may face in the future is making a profit. The solution, he
said, is to demand fees up front.
"These companies are giving away their services," he said. "They don't make any money on it.
We need to shift toward a fee-based service, based on the success or lack of success of the
bonds."
Ernest Butler Jr., chairman and president of Little Rock-based IE Butler Securities Inc. and a
friend of Fraser's for 20 years, said Fraser was outstanding in his field.
"I don't know if anyone has as much knowledge about the industry, particularly in the municipal
and tax-exempt arenas," Butler said.
Fraser, for his part, credits Butler with helping get the ball rolling on financing the ACA venture.
"Everybody likes to talk about Fraser being unconventional," Butler said. "That's just his nature.
If someone was out of a job, whether it was in the financial guaranty industry or otherwise, Russ
would do whatever he could to help that person get a job. A lot of people could raise their hands
and say, 'Russ Fraser helped me get a job.' He's an honest, ethical, and caring person."
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