Moody's Investors Service late Wednesday night said it will review for possible upgrade the B2 ratings of Syncora Guarantee Inc. and Syncora Guarantee Re Ltd. following the recent announcement that Syncora Holdings Ltd. had closed on its deals with former parent XL Capital Ltd. and Merrill Lynch & Co.
Moody's said the agreements will significantly improve the capital positions of Syncora Guarantee and Syncora Guarantee Re, but that concerns about remaining mortgage-related exposures and "franchise value" will likely prevent ratings from moving above investment grade.
Syncora Holdings - formerly Security Capital Assurance Ltd. - announced last week it would receive $1.775 billion and eight million shares of stock from former parent XL Capital Ltd. in return for the termination of certain guarantees. It also agreed to pay Merrill $500 million to commute eight credit-default swaps.
Moody's said the Merrill deal "has some elements that are typically associated with a distressed exchange, though such a determination is ultimately a matter of judgment." Syncora has also set aside $820 million to settle deals with other CDS counterparties.
New York insurance superintendent Eric Dinallo - who brokered the deal - said the deal could be a "template" for other insurers going forward. He said his department is currently engaged in other conversations with other insurers.
"Along with the CDO terminations recently announced by Ambac, these steps add momentum to the movement towards renewed certainty and stability in the market," Dinallo said in a statement following the closing. "The department will continue to support and facilitate these and other efforts to enhance the financial condition of stressed bond insurers."
