| HBS Case Collection
First Capital Holdings Corp.
The manager of a money-management firm considers whether to invest in the securities of a large, financially troubled, California-based life insurance holding company that holds 40% of its assets in high-yield junk bonds. Over the past year, the value of its portfolio has declined significantly, and it is seeking a large infusion of capital from its largest (28%) shareholder--a New York-based investment bank--that is experiencing financial difficulties of its own. Within the last month, another large California-based insurance company that also invested heavily in junk bonds was seized by regulators following a "run on the bank" by concerned policyholders, and the State Insurance Commissioner has publicly announced his intention to "crack down" on abuses in the insurance industry.
Governing Rules, Regulations, and Reforms;
Fair Value Accounting;
Gilson, Stuart C., Harry DeAngelo, and Linda DeAngelo. "First Capital Holdings Corp." Harvard Business School Case 296-032, May 1996.