Financial Guaranty Insurance Corp. met the regulatory deadline to submit a proposal to repair its battered finances.

The troubled bond insurer was the recipient in November of a blunt letter from the New York Insurance Department. The letter informed FGIC that it had until Jan. 5 to submit a detailed “restoration” plan and until March 25 to implement it.

Otherwise, the NYID would seek its “rehabilitation or liquidation.”

In a statement yesterday, FGIC said it met the first deadline by submitting the plan.

The department’s order concerns FGIC’s “policyholder surplus,” or assets in excess of liabilities allowing for certain accounting adjustments.

The surplus represents the cushion a bond insurer has to retain in order to remain solvent even if it has to pay claims.

FGIC has to book reserves anticipating claims on the bonds it insures. Every time a bond appears more likely to default, the company has to put more money in reserve. Reserves take money out of assets,  reducing policyholders’ surplus.

The turmoil in the credit and real estate markets has forced FGIC to squirrel away more than $2 billion into loss reserves, clobbering the company’s balance sheet. Many of FGIC’s policies insure debt secured by mortgage loans with bad credit.

New York requires bond insurers to maintain a policyholder surplus of at least $65 million. At the end of September, FGIC was shy of this minimum by more than $900 million, according to its ­financial statements.

FGIC stopped writing new policies in January 2008 and has no plans to start again. Moody’s Investors Service and Standard & Poor’s no longer rate the company.

In September, FGIC floated several ideas to the NYID to help bring the company’s capital cushion into compliance.

The company planned to buy some of the bonds it insures, and pay some policyholders to strip FGIC insurance from their debt. In both cases, that would enable the company to free up some of the money it had reserved to pay claims, since the bonds would no longer be insured.

That strategy has worked, at least temporarily, for Syncora Holdings Ltd.

FGIC submitted its plan on Dec. 22, according to NYID deputy insurance superintendent Michael Moriarty.

The plan pivots on the negotiations with insured bondholders and other counterparties, Moriarty said. If the counterparties agree to FGIC’s plan and the company’s capital would be restored, the NYID will allow it to proceed, Moriarty said. Otherwise, he said the regulator retains the option to liquidate the company.

FGIC is owned by PMI Mortgage ­Insurance, Blackstone Group LP, and Cypress Group LLC. FGIC insures almost $300 billion of debt, of which roughly two-thirds has been reinsured by another company.

National Public Finance Guarantee Corp. reinsures $200 billion of FGIC’s muni bond portfolio. FGIC still insures about $16.7 billion of municipals not reinsured by NPFG.

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