SCA Stellus Capital Investment Corporation

HAMILTON, Bermuda, April 1 /PRNewswire-FirstCall/ -- Security Capital Assurance Ltd (NYSE:SCA) ("SCA" or the "Company") announced today that its financial guarantee subsidiary XL Capital Assurance Inc. ("XLCA") has filed its answer and counterclaims in the United States District Court for the Southern District of New York against Merrill Lynch International ("Merrill Lynch International") and Merrill Lynch & Co. Inc. ("Merrill Lynch"), in response to Merrill Lynch International's March 19, 2008 lawsuit against XLCA. In its filing, XLCA disputes the legal claims filed by Merrill Lynch International and defends the terminations of the seven credit default swaps ("CDS") entered into between XLCA and Merrill Lynch International. As noted in the counterclaim, "In attempting to offload subprime mortgage and other liabilities related to troubled collateralized debt obligations ("CDOs"), Merrill Lynch agreed to provide third parties with control rights over seven of its CDOs, even though those same control rights had already been exclusively committed to XLCA." XLCA required sole control rights under the seven CDOs at issue as a "fundamental condition" to entering into the CDS with Merrill Lynch International. However, during its 2007 third quarter in which it would write down approximately $7.9 billion in its CDO and subprime mortgage businesses, "Merrill Lynch undertook a rushed campaign to find parties willing to hedge or provide protection on its remaining CDO positions...Determined to get these CDO risks off its books at all costs before the third quarter of 2007 closed, Merrill Lynch made the decision to blatantly ignore its prior commitments to XLCA." XLCA's counterclaims ask the court to declare that XLCA's terminations are effective and that it has no additional obligations under the CDS. The notional amount of the terminated CDS 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, 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. In addition, XLCA seeks damages estimated to be at least $28 million for amounts that Merrill Lynch International is obligated to pay XLCA under the terms of the CDS as a result of the terminations. The Company stated, "Despite whatever claims Merrill Lynch may make regarding our decision to enforce these contract terminations, we believe Merrill Lynch gave away our control rights on seven CDOs in direct violation of our agreements. On behalf of our policy holders and shareholders, we intend to defend the terminations vigorously and look forward to presenting our case to the court soon." About Security Capital Assurance Ltd 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 +1 441-279-7448 +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: recent and future rating agency statements and ratings actions; the outcome of the Company's dispute with Merrill Lynch concerning the Company's termination of seven credit default swap contracts; the Company's ability to successfully implement its strategic plan; 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 of Security Capital Assurance Ltd, +1-441-279-7448, , or Media, Michael Gormley of Security Capital Assurance Ltd, +1-441-279-7450, ; or Michele Loguidice of Brunswick Group for Security Capital Assurance Ltd., +1-212-333-3810, Web site: http://www.www.scafg.com/

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