Bond insurer Syncora Guarantee Inc. yesterday suspended all claims payments, following on an order the New York Insurance Department signed earlier this month, the company announced.
Syncora said it is now operating “only in the ordinary course and as necessary to complete a successful comprehensive restructuring.”
The company is currently attempting to reduce its structured finance exposure to fix the $2.4 billion policyholders’ deficit it reported at the end of last year.
New York insurance regulators wanted claims payments suspended so that Syncora would not pay out any claims that would be viewed as preferential if it ends up in rehabilitation or liquidation. The bond insurer also said it does not want to “deplete” resources that could be used to settle or commute certain exposures.
Syncora is prohibited from paying claims until it remedies its policyholders’ deficit and meets minimum capital requirements.
The company said its board of directors will continue to monitor the situation on a daily basis. If Syncora cannot complete its restructuring, it will ask the New York Insurance Department to seek court appointment of a rehabilitator or liquidator.
The department has set a deadline of May 29 to fix the policyholders’ deficit. But the order does not prevent regulators from seeking the bond insurer’s liquidation or rehabilitation earlier.
Syncora’s restructuring plan included commuting billions of dollars in structured finance exposures and having a fund purchase residential mortgage-backed securities it insured.
The bond insurer said its plans, if completed, would have increased its $2.4 billion policyholders’ deficit into a $150 million to $375 million policyholders’ surplus as of Dec. 31.