Syncora Guarantee Inc. Wednesday took a step in its plan to reduce its outstanding exposures, as a fund made its tender offer yesterday to acquire residential mortgage-backed securities Syncora insured, the guarantor announced.
The BPC Voyager Master Funds SPC Ltd., acting on behalf of and for the account of the Distressed Opportunities Master Segregated Portfolio, has arranged for funding of $385 million, with the offer extending to securities with an aggregate notional value of $5.9 billion.
Assuming the New York Insurance Department permits Syncora to de-recognize reserves for unpaid losses and loss adjustment expenses, Syncora believes the in-substance defeasement of the securities could lead to an increase of as much as $667.3 million in policyholders’ surplus, parent Syncora Holdings Ltd. said in a separate filing Wednesday with the Securities and Exchange Commission.
The tender offer is part of a broader plan Syncora has made to reduce its exposures, which would also include commuting credit-default swaps.
In a nonbinding letter of intent it signed with most of its counterparties, Syncora agreed to negotiate on a deal in which it would give the counterparties approximately $1.2 billion in cash, 40% of the outstanding common shares of its stock, a $150 million short-term and a $475 million long-term surplus note from Syncora Guarantee, and possibly other considerations to commute those transactions.
Syncora estimates it would have reported a policyholders’ surplus of $241.9 million as of Dec. 31 if all of the transactions it is contemplating are considered, according to the SEC filing. Without those deals, Syncora reported a policyholders’ deficit of $2.4 billion.
If Syncora continues to report a surplus of less than the $65 million required by New York insurance law, the department could step in to rehabilitate or liquidate the company, Syncora has warned.
As part of the nonbinding letter of intent, Syncora also agreed to create a drop-down insurance company that would take on the responsibility for certain public finance and global infrastructure transactions.
The company said yesterday that it would be expected to have a policyholders’ surplus of between $200 million and $300 million based on its initial capitalization.
Syncora also said that if the new insurer gets into an adverse financial position, the New York insurance regulators may require it to find an unrelated financial guarantor to reinsure the public finance business.
However, Syncora noted that its expectations were based upon all its contemplated transactions occurring as planned.
That would include all 23 counterparties executing the plan set forth in the nonbinding letter of intent. The company said it can not assure that all will sign it, and that one “significant counterparty has indicated that it is not presently contemplating executing the letter of intent in its current form.”
