Syncora inks support deal with noteholders and preferred shareholders

By Caroline Salls

Pittsburgh, July 1 – Syncora Holdings Ltd. and wholly owned subsidiaries Syncora Holdings US Inc. and Syncora Guarantee Inc. entered into a transaction support agreement in connection with a comprehensive exchange designed to delever and improve the overall financial condition of the company, according to a news release.

The agreement was reached with holders of more than 82% by principal amount of Syncora Guarantee’s externally held surplus notes and holders of more than 84% by liquidation preference of externally held Syncora preferred shares.

The company said the transaction will create and maximize value for common shareholders and all other stakeholders and position it to raise capital for future business opportunities.

The transaction, which is expected to close in the third quarter, would involve a series of interrelated transactions that would result in reducing Syncora’s outstanding securities by $280 million, consisting of all $250 million of preferred shares and a net reduction of $30 million on Syncora Guarantee’s surplus notes in exchange for 30.3 million, or 35%, of newly issued Syncora common shares.

The transaction calls for the reallocation to Syncora Holdings US from Syncora Guarantee of between $1.7 and $1.8 billion of net operating losses for use by Syncora Holdings without reimbursement and, subject to the approval of the New York Department of Financial Services (NYDFS), a total payment on Syncora Guarantee’s surplus notes held by third parties of $55 million.

Transaction terms

Specifically, the terms of the transaction support agreement include:

• Syncora Guarantee’s third-party surplus noteholders will exchange $70 million of the total claim amount owed on their surplus notes for 20% of Syncora common shares;

• All $165 million liquidation preference of Syncora’s preferred shares held by third parties will be converted into 15% of common shares, and $40 million of the total claim amount owed under the surplus notes will be received in the exchange with the surplus noteholders;

• The company will cancel about $85 million liquidation preference of its owned preferred shares and $30 million of the total claim amount of the surplus notes received in the exchange;

• The company will amend its existing tax sharing agreement, allowing for the reallocation of between $1.7 and $1.8 billion of Syncora Guarantee’s excess net operating losses for use by Syncora Holdings US without reimbursement, with Syncora Guarantee and its Syncora Capital Assurance Inc. subsidiary receiving net operating loss protection measures;

• Subject to approval, Syncora Guarantee will make a payment of $55 million in cash on amounts due to third-party surplus noteholders for the full 2016 calendar year, and the negative earned surplus of Syncora Guarantee and the subsidiary will be removed or decreased;

• In addition to the cash payment, Syncora Guarantee will, from time to time, request NYDFS approval to pay all amounts due on the surplus notes at the time of the request and to seek NYDFS approval to make a net debt service payment to third parties of no less than $55 million per year, beginning in June 2017 or earlier; and

• Syncora Guarantee third-party surplus noteholders and Syncora third-party preferred shareholders that sign the support agreement will have the right to designate a total of three directors to the Syncora board.

The transaction is subject to approvals by the NYDFS, 98% participation of third-party surplus noteholders and approval by a majority of preferred shareholders.

Syncora is a Bermuda domiciled holding company.

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