A creditor who refrains from enforcing a debt when it falls due is giving “forbearance.” How many forbearance agreements can one company get?

As long as the creditors benefit more from waiting than they do by taking action, the forbearances almost seem perpetually possible.

ACA Capital is on its fourth forbearance (12/20/07, 1/20/08, 2/19/08, 4/24/08) with “its structured credit and other similarly situated counterparties” who have decided that “waiving all collateral posting, termination rights and policy claims” was much better than causing a meltdown in the CDO and CDS worlds. Each press release announcing the new forbearance says how happy everyone is to give each other time to work closely “to develop a permanent solution to stabilize its capital position.” The current grace period is set to expire on May 30, 2008. Maybe they will have a permanent solution for its capital needs by then or maybe it’s just better to give another forbearance.

Despite not getting much attention from the media, ACA has been at the forefront of almost every aspect of the credit crisis. The Bear Stearns connection and using ACA as a conduit to push out its CDOs, the timing of the ACA Capital IPO in relation to the subprime / CDO problems, the underwriting of the ACA IPO, the Bear Stearns impact on corporate governance via execs and board representation, the timing of resignations by ACA execs, the A rating by S&P, the timing and withdrawal of a secondary offering in June, the impact of S&P downgrades (12 levels) in December, the writedowns at CIBC, Merrill, ANZ, et al caused by ACA downgrades, its role as the impetus for monoline bailout discussions, and on and on it goes.

ACA traded about $15 per share on the NYSE in June 2007. It’s now on the pinks at about 30 cents per share with a market cap around $10 million. Once it got delisted, I stopped covering the stock. However, I still watch the forbearance situation. As long as the extensions continue, I keep contemplating about how much more benefit there is to waiting than there is to enforce the obligations.