pioneer in the field of municipal bond insurance.

New York-based American Capital Access Holdings Inc. (ACA) has teamed up with outside investors to create GCA Ltd., a reinsurer of low-rated municipal bonds and asset-backed securities.

American Capital provides its own brand of insurance for hospitals, schools, and small towns that have low or no credit ratings.

Seeking to raise capital, GCA Ltd. filed with the US Securities and Exchange Commission (SEC) to raise as much as $290.4 million through an initial public offering.

The company will then provide reinsurance to American Capital, increasing its capacity to write insurance policies for low-rated municipal bonds.

Eventually, GCA hopes to expand worldwide.

Chairman and chief executive officer of GCA, Donald Matthews, said: "Since ACA is the first and only `A' rated bond insurer in the US, we decided to get some support from new investors.'' GCA filed to sell 19,362,500 shares for as much as $15 a share. In addition, GCA will offer warrants and shares to investors and to executives through direct sales. The company said it used the $290.4 million figure solely to calculate the SEC registration fee.

The filing comes at a time when market turmoil has dampened investor enthusiasm for initial stock offerings. Just one company set a price for its IPO last week and no IPOs are scheduled for next week as trouble in Asia and Russia has shaken confidence in the US markets.

GCA is "filing in anticipation that the market is going to get better and because they're optimistic they have a business which is more compelling,'' said Randall Roth, an analyst at Greenwich, Connecticut-based Renaissance Capital Corp., which specialises in IPOs.

Bond insurance guarantees payment of principal and interest on loans.

Traditional insurers such as MCIA Inc. are `AAA' rated, the highest possible.

As a result, the debt guaranteed by these companies carries a `AAA' rating.

ACA is rated `A' and so the debt insured by the company is also rated `A.' The lower-rated debt costs less and still helps issuers reduce borrowing costs, GCA said.

Municipal bond offerings are up 44 percent since last year, at $192.3 billion through August 1998 compared with $133.9 billion in the first eight months of last year, analysts said, citing data from the Bond Buyer.

That could help GCA, which hopes to reinsure this type of bond once it receives an A rating.

The goal of GCA is to provide reinsurance for the insured bonds that need it most. GCA will target debt rated from `A-' to `BB,' the filing said. The company will start by selling reinsurance to ACA.

GCA eventually hopes to sell `A' insurance outside the US and to sell reinsurance around the world.

GCA hopes to benefit from the developing market for `A' rated bond reinsurance. That market has been largely overlooked by traditional bond insurers, as a booming municipal bond market has provided ample chances to sell top-rated reinsurance for `AAA' rated bond issues, analysts said.

American Capital may take a minority stake in GCA, Matthews said. The Trident Partnership LP. and Risk Capital Insurance Company will buy 7.1 million common shares and Class B warrants that equal 700,000 shares for about $100 million total, the filing said. Inter-Atlantic Securities Corp. also helped create GCA.

Bermuda-based GCA expects to have an equity capitalisation of $333.9 million after the IPO and the direct sales to strategic investors. The company is pinning its future success on providing `A'-rated reinsurance throughout the world, much as American Capital did within the US. The company also plans to sell `A'-rated insurance outside the US.

The reinsurer "developed because of the success of ACA,'' said Matthews. The goal is "to develop the market outside of the US. That's really where it's future will lie.'' H. Russell Fraser, 57, chief executive officer of American Capital and former chairman of Fitch Investors Service LP, will serve on GCA's board of directors.

Merrill Lynch & Co. and Prudential Securities Inc. will be joint lead managers on the deal. GCA has applied to trade on the Nasdaq Stock Market under the symbol GCALF. -- Bloomberg