Syncora Guarantee Inc. has failed to pay claims totaling $61.7 million on eight insurance policies since suspending its claims payments in April, according to a statutory filing released yesterday.
Following an order signed by the New York Insurance Department, the bond insurer has suspended claims payments while it attempts to reduce its structured finance exposures and meet its minimum capital requirements. The insurance regulators have given the company until May 29 to complete its agreements, although they have the right to intervene earlier.
Syncora had a policyholders' deficit of $3.8 billion after posting a $1.4 billion net loss in the first quarter. It finished last year with a policyholders' deficit of $2.4 billion.
The insurer reported a provision for loss and loss-adjustment expenses of more than $1 billion for collateralized debt obligations of asset-backed securities in the first quarter.
Syncora has signed definitive agreements with 24 of 25 counterparties that will allow it to terminate or transfer its credit-default swap contracts and the related financial guarantee contracts. Under the plan, Syncora will pay counterparties $1.2 billion in cash, shares representing about 40% of parent Syncora Holdings Ltd., a $150 million short-term and a $475 million long-term surplus note, and potentially other considerations.
Syncora has also created a new subsidiary that will provide cut-through reinsurance on Syncora's public finance and select global infrastructure credits. Syncora will capitalize the new insurer, Syncora Capital Assurance Inc., with $210 million in equity and by purchasing two surplus notes with a total principal amount of $350 million.
The second part of Syncora's plan involves purchasing residential mortgage-backed securities it insured. If it meets its minimum requirements, Syncora will "significantly reduce" its exposure to residential mortgages.
Syncora will continue to report a policyholders' deficit if it fails to complete these agreements, it said. If insurance regulators intervene, CDS holders may ask to terminate their contracts and get paid termination values, in which case Syncora "would not have sufficient liquidity to fund its obligations as they become due."
Syncora insured 3,092 issues in the municipal market with a par value of $66.1 billion since 2001, according to Thomson Reuters.
