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Will the downgrading of one, albeit small, insurer cause a daisy chain effect that will pressure other similarly insured securities and vehicles downward? If downgraded, the bonds insured by ACA will be downgraded, forcing some selling which will cause devaluation (by marking to market) which may cause the value of holdings of other entities to drop, which may cause further downgrading - and so on. Just a thought - I haven't performed any research on this.

NEW YORK, Nov 9 (Reuters) - Standard & Poor's on Friday said it may cut its ratings on ACA Financial Guaranty Corp, the insurance arm of ACA Capital (ACA.N: Quote, Profile , Research), saying the company's substantial loss in the third quarter may impair its ability to generate a satisfactory level of new business.

ACA Capital on Thursday reported a $1.0 billion net loss for its third quarter, compared with earnings of $16.1 million during the same period in 2006, S&P said in a statement.

"Exacerbating the issue is the fact that the significant slowing of the subprime mortgage market directly affects two of ACA's three product lines, possibly necessitating significant changes to the company's business model," S&P said.

"Also relevant is the potential deterioration of collateral in ACA's structured credit transactions and the company's constrained liquidity, resulting from a lack of access to its existing liquidity facility," S&P said