A bond insurance startup launched by Goldman, Sachs & Co. public finance veterans pushed out its president after a so-far unsuccessful capital fundraising campaign.

Bradley Wendt was let go from BondFactor in November as the startup struggled to gain the capital it needs from investors to get off the ground.

Around the same time, BondFactor's managing director of capital markets, Rick Fitzgerald, also left the company. Both Wendt and Fitzgerald, along with at least five other current BondFactor executives, including chairman and chief executive officer George Butcher, were previously at Goldman, Sachs & Co.

The firm, launched by Wendt and Butcher in 2009 as BondModel and renamed BondFactor in 2010, plans to insure municipal bonds using a risk-pooling method that industry participants have said resembles a municipal-collateralized debt obligation. The company has not received ratings and has not been successful in its efforts to raise capital through private equity or investment banks, sources said. BondFactor has said it is on the verge of entering the market as far back as 2010, according to Bond Buyer articles.

"What has hurt them has been their inability to raise capital which has been caused by their inability to convince the marketplace of their model," a source familiar with BondFactor's fundraising efforts said in an interview. "As a result, they haven't been able to get a rating."

BondFactor has approached three investment banks in the past year in an effort to build a capital base through methods such as a private placement offering. Since its inception, the company has met with numerous private equity firms. Neither effort has resulted in any firms putting money on the table, sources said.

"We are on track with our plan to bring to market a unique offering and opportunity in the municipal bond industry," BondFactor said in an emailed statement. "We continue to work with top advisors on entering the market and are confident that there will be great excitement about our product."

Hesitation by banks and private equity firms to invest in BondFactor is a reflection of doubts about the bond insurance market's future in general, as well as BondFactor's proprietary model, which has been deemed complex by rating agencies and investors, sources said.

BondFactor's insurance model is based around a patented computer-implemented method and system for structuring risk in a financial transaction, according to a patent application filed in 2010 and published in 2012.

"Regulators aren't typically happy with nontraditional approaches to capital allocation," a person close to the bond insurance industry said. "It's been my experience that regulators aren't interested in innovative structures. They are looking for stability and security for policyholders."

The firm has been in talks with rating agencies but has not yet received a rating. In 2011, Wendt said that the company was in talks with Standard & Poor's, Moody's Investors Service and Kroll Bond Ratings. Without a capital base, the firm is unlikely to receive a rating befitting of a bond insurer, sources said.

"It's a chicken and the egg situation," the source familiar with BondFactor's fundraising efforts said. "They need the capital to get the rating, but they have to have credibility to get the capital."

BondFactor's credibility suffered in the eyes of some investors when it surfaced that former president Wendt was the chief executive officer of a group called United Sports League, which owned an independent baseball league called United League Baseball that filed for Chapter 11 in 2009.

Wendt repeatedly met with private equity firms throughout the first few years after BondFactor's launch and failed to get investors on board.

The bond insurance industry was decimated after the financial crisis and investors and rating agencies showed concern over BondFactor's CDO-like model.

The model pools risk, with senior tranches and several subordinated pieces, the patents show. The senior pieces in the waterfall of payments would be guaranteed and subordinated pieces would be sold off as trust certificates with lower ratings sources explained. The system counts on a market for those subordinated pieces, which, even with lower ratings, would be in demand by consumers who assume muni debt to be a safe bet.

"Investors would say there are too many moving parts in the machine to get comfortable," a source familiar with BondFactor said. "Some people just wanted the comfort food and simplicity of the old model."

With no success in the private equity realm, the firm is now looking to institutional investing options at banks. The person familiar with BondFactor's fundraising campaign estimated a startup insurer like BondFactor would need a capital base of between $200 and $300 million to get started.

Wendt's duties as president were assumed by Roy Torkelson, BondFactor said. Torkelson, who has acted as the company's chief operating officer, has over thirty years of finance experience including positions at Merrill Lynch and JP Morgan.

"Roy's promotion enhances BondFactor's ability to expand our team, strengthen our organization and enter the market as soon as possible," the company said in an emailed statement.

BondFactor would not comment on the details of its insurance model or its capital fundraising campaign, nor would it provide an estimated launch date.

While some industry analysts have pointed to bond insurance as a viable product during a time of uncertainty in the municipal space, market penetration by insurance remains at all-time lows of less than 4% of new issues. With just two active insurers, Assured Guaranty and Build America Mutual, there may still be room for new or resurgent insurers like BondFactor and National Public Finance Guarantee, analysts have said.

"It feels like BAM has beat them to the punch," the source with knowledge of BondFactor's capital-raising campaign said. "They've approached institutional investors, insurance companies, hedge funds, and it appears there's little interest."

The fact that BondFactor has been approaching banks for a year without any known success may indicate that the window of opportunity has passed, another person said.

"If you're going up and down the block telling the story and people say, 'let me know who else is interested,' and nobody jumps on board, the word's out," the person said. "You don't really get a second bite at the apple."

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