Syncora Finishes Restructuring, But Claims-Paying on Hold

Bond insurer Syncora Guarantee Inc. announced late Monday it has completed the comprehensive restructuring it began in July 2009, but contrary to earlier hopes the company is far from ready to recommence paying claims.

Syncora Guarantee is one of several monoline bond insurers whose balance sheets were wrecked when the structured finance products it guaranteed suffered heavy losses during the credit crisis. After posting a policyholder deficit of $2.6 billion at the end of 2008, the company initiated a massive restructuring to tear up its riskiest exposures in an attempt to free up capital it had reserved for paying claims.

In late January Syncora said it was one step away from completing this “master transaction agreement” and that upon closing the final deal, it would ask its regulator, the New York Insurance Department, to lift the suspension on paying claims, which was imposed in April 2009.

The deal is now closed, but Syncora stated that “significant short-term liquidity and surplus issues” will prevent it from making any request to the NYID to recommence paying claims.

In addition, the insurer said it cannot guarantee that the department will not take further regulatory action, which may include commencement of rehabilitation or even liquidation proceedings.

That raises the question as to whether Syncora may breach the $65 million minimum surplus as set by the NYID.

Early last month, the company posted a year-end statutory surplus of $99.7 million, reflecting a decline from the $181.8 million surplus it held at the end of the third quarter.

More recent information has not been available, and the terms of the final transaction were kept confidential. However, Syncora said the deal involved a cash payment that was previously accounted for and that it will not affect its capital position.

Meanwhile, since a lawsuit charging the insurer’s Bermuda based-parent, Syncora Holdings Ltd., with fraudulent misrepresentation was dismissed on April 5, company stock has shot up 51.2% from $0.29 to close at $0.44 yesterday.

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