Syncora Holdings to Report $1.3B 3Q Loss

Syncora Holdings Ltd. expects to report a third-quarter net loss of approximately $1.3 billion, up from a net loss of $89.9 million in the third quarter of last year, the firm said yesterday in a filing with the Securities and Exchange Commission.

The disclosure came in a notice Syncora filed saying it would delay the release of its 10-Q for the third quarter. The company said in a press release it expects to file its quarterly statement on or before Nov. 17, but will not hold a customary conference call with investors.

The SEC filing also said that due to "significant adverse loss development," bond insurer subsidiary Syncora Guarantee Inc. may not be able to maintain a positive statutory surplus or compliance with the $65 million minimum statutory surplus required by New York State. This could lead the New York Insurance Department to intervene, the filing said.

As of June 30, Syncora reported a statutory deficit of $881 million, it said in its second-quarter earnings report, but deals it struck in July with Merrill Lynch & Co. and XL Capital Ltd. - and the expectation of settlements with other counterparties - helped keep regulators from putting the company into rehabilitation.

Syncora is still working with counterparties to commute its other structured finance exposures, but an official from the New York Insurance Department said in an interview yesterday that from a regulatory standpoint, "time is running out" for the company to reach settlements.

"Their plan is basically to commute with their structured securities counterparties and realize basically increases in capital through that," said Michael Moriarty, the Insurance Department's deputy superintendent for property and capital markets. "They are still in negotiations with those counterparties, but the department cannot let this thing go on forever. I do think time is getting short for them to come to a final agreement to eliminate the insolvency."

During Syncora Holdings' second-quarter earnings conference call, acting chief executive officer and general counsel Susan Comparato said commuting $52.9 billion in credit-default swap exposures was the company's "primary objective" in the near term. It has set aside $820 million and 46% of its own stock for possible settlements with 17 counterparties.

But an already-extended deadline for these counterparty discussions has expired, Syncora said in a recent SEC filing. The company continues to negotiate with counterparties, but can make no guarantees it will reach a deal or get another extension, the filing said. A spokesman said the company could not comment on the negotiations.

Syncora must file its statutory statements with the New York Insurance Department by Nov. 17. If the company shows a negative statutory capital surplus, the department has the option of proceeding with rehabilitation. If the company has a positive surplus that falls below the $65 million threshold, it would have 90 days to remedy it before the department gets the option of intervening.

The department has already held off on intervening despite Syncora's negative statutory capital surplus. New York insurance superintendent Eric Dinallo said at the time the deals with Merrill and XL Capital were announced that the department had previously sent in staffers to prepare for the company's rehabilitation because it feared Syncora would not meet its deadline to come up with a solution for the capital shortfall.

In its filing yesterday, Syncora attributed its expected losses primarily to the net change in the fair value of credit derivatives during the period, losses and loss adjustment expenses on mortgage-related exposures, and realized net losses on investments primarily due to other than temporary charges during the period.

It did not break down the extent of those losses for the third quarter, but it expects to have reserves for unpaid losses and loss-adjustment expenses of $800 million and derivative liabilities of approximately $2.5 billion as of Sept. 30.

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