SCA Stellus Capital Investment Corporation

HAMILTON, Bermuda, March 20 /PRNewswire-FirstCall/ -- In response to a lawsuit filed yesterday in a New York federal court against XL Capital Assurance Inc. ("XLCA"), the financial guarantee subsidiary of Security Capital Assurance Ltd (NYSE:SCA) (the "Company" or "SCA") by Merrill Lynch International ("Merrill Lynch International"), a subsidiary of Merrill Lynch & Co. Inc. (NYSE:MER) ("Merrill Lynch"), the Company confirmed that Merrill Lynch International was the previously referred to counterparty to the seven credit default swaps that the Company announced XLCA had terminated in February and March. As the Company previously disclosed on March 17, 2008, the notional amount of the terminated credit default swaps at December 31, 2007 aggregated $3.1 billion before reinsurance. For the year ended December 31, 2007, the Company recorded a charge of $632.3 million relating to these CDS contracts, of which $215.0 million represents a net unrealized, mark-to-market loss and $417.3 million represents the provision of case basis reserves for losses and loss adjustment expenses. The Company today disclosed that it had terminated XLCA's contracts with Merrill Lynch International due to the fact that Merrill Lynch International repudiated its contractual obligations to XLCA by committing to provide one or more third parties with the same CDO control rights that it had previously promised to XLCA. The Company today stated: "The decision to terminate the Merrill Lynch International contracts was not made lightly. It was important to XLCA under these agreements that it secured control rights in order to better protect our interests and it is indefensible that Merrill Lynch International chose to strip XLCA of those protections." "Despite whatever other claims Merrill Lynch may make regarding these terminations, we believe that Merrill Lynch International gave the control rights on seven collateralized debt obligations ("CDOs") contracts to one or more third parties without our knowledge and in direct violation of our agreements. As a result, we have a responsibility to take the appropriate action and terminate these contracts. We are disappointed that Merrill Lynch has decided to avoid taking responsibility for its conduct." XLCA had agreed to enter into each of the seven transactions with Merrill Lynch International on the condition that it exercise CDO voting rights described in the agreements "solely in accordance with the written instructions" of XLCA. By committing to provide the same voting rights to a third party, Merrill Lynch International repudiated its contractual obligations to XLCA and entitled the Company to terminate the trades. Although Merrill Lynch International disputes the terminations, it has repeatedly failed to deny having entered into agreements with a third party that accorded them voting rights Merrill Lynch International had previously promised to XLCA. Merrill Lynch International again fails to deny having done so in the lawsuit it filed yesterday against XLCA. The Company continued, "XLCA strongly disputes the basis for the legal claims that Merrill Lynch International filed yesterday and intends to defend its terminations vigorously. The Company has already retained trial counsel at the law firm of Quinn Emanuel Urquhart Oliver & Hedges and looks forward to a prompt trial at which it can have its rights vindicated." About Security Capital Assurance Security Capital Assurance Ltd is a Bermuda-domiciled holding company whose common shares are listed on the New York Stock Exchange (NYSE:SCA). For more information please visit http://www.scafg.com/. Contact: Investors Media Frank Constantinople Michael Gormley +1 441-279-7450 +1 441-279-7450 Michele Loguidice +1 212-333-3810 FORWARD-LOOKING STATEMENTS This release contains statements about future results, plans and events that may constitute "forward-looking" statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You are cautioned that these statements are not guarantees of future results, plans or events and such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control. These factors include, but are not limited to: the outcome of the ongoing rating assessments for SCA and its subsidiaries and for all bond insurers, generally, by Fitch, Moody's and S&P, the outcome of the Company's discussions with Fitch, Moody's and S&P, and the Company's ability to successfully address any capital requirements within required timeframes; the impact of the recent ratings actions on SCA's operating subsidiaries announced on March 4, 2008 by Moody's, February 25, 2008 by S&P, and January 23, 2008 by Fitch, including the downgrades of the IFS ratings of XLCA, XLCA-U.K. and XLFA; higher risk of loss in connection with obligations guaranteed by the Company due to recent deterioration in the credit markets stemming from the poor performance of subprime residential mortgage loans; the suspension of writing substantially all new business and the Company's ability to continue to operate its business in its historic form; the development and implementation of a strategic plan; developments in the world's financial and capital markets that adversely affect the performance of the Company's investments and its access to such markets; the performance of invested assets, losses on credit derivatives or changes in the fair value of credit default swaps; the availability of capital and liquidity; the timing of claims payments and the receipt of reinsurance recoverables; greater frequency or severity of claims and loss activity including in excess of the Company's loss reserves; changes in the Company's reinsurance agreements with certain of its subsidiaries; the impact of provisions in business arrangements and agreements triggered by the ratings downgrades; the impact of other triggers in business arrangements including CDS contracts; changes in regulation, tax laws, legislation or accounting policies or practices; changes in officers; general economic conditions; changes in the availability, cost or quality of reinsurance or retrocessions; possible downgrade of the Company's reinsurers; possible default by the counterparties to the Company's reinsurance arrangements; the Company's ability to compete; changes that may occur in Company operations and ownership as the Company matures; and other additional factors, risks or uncertainties described in Company filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and also disclosed from time to time in subsequent reports on Form 10-Q and Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements are made. DATASOURCE: Security Capital Assurance Ltd CONTACT: Investors, Frank Constantinople, +1-441-279-7450, , or Media, Michael Gormley, +1-441-279-7450, , both of Security Capital Assurance Ltd; or Michele Loguidice, +1-212-333-3810, , for Security Capital Assurance Ltd Web site: http://www.scafg.com/

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