Hamilton, Bermuda-based insurer XL Capital, Ltd., said it has closed its deal with Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd. The name was changed on Aug. 4) that sever XL ties with its former guaranty insurer and ensure Syncora's financial viability.
Under the deal, announced July 28 by XL Capital and New York State Insurance Superintendent Eric Dinallo, who helped negotiate the transaction, XL Capital, the former parent of Syncora's XL Capital Assurance Inc. and XL Financial Assurance Ltd., (now called Syncora Guarantee Inc. and Syncora Guarantee Re Ltd., respectively) will pay up to $2 billion in combination cash and stock. In return XL terminates, commutates or restructures financial guarantee and reinsurance arrangements with Syncora.
The move leaves Syncora with $1 billion in surplus, moving it from close to insolvency to a solvent insurer, Mr. Dinallo said.
"The closing of the previously announced transactions between XL Capital Ltd. and Syncora Holdings Ltd., in addition to the closing of the transactions between Syncora and Merrill Lynch & Co. and the successful effort by XL to raise capital to help fund the transaction are continuing steps in the effort to stabilize Syncora and protect the bond insurance company's policyholders," Mr. Dinallo said in a statement.
He added, "Along with the CDO [collateralized debt obligations] terminations recently announced by [troubled bond insurer] Ambac, these steps add momentum to the movement toward renewed certainty and stability in the market. The department will continue to support and facilitate these and other efforts to enhance the financial condition of stressed bond insurers."
XL Capital said the deal amounted to approximately $2.88 billion gross proceeds in ordinary shares and equity security units, including the proceeds from the exercise of the underwriter's overallotment option. Of that amount, Syncora receives more than $1.77 billion.
Michael S. McGavick, XL's chief executive officer, said in a company statement: "The support for our capital raise has been tremendous. I believe its success is a clear endorsement of the XL franchise, of our re-focused strategy and commitment to our dual insurance and reinsurance platform, and a vote of confidence in our ability to compete and win business."
XL Capital also announced that it received approximately $500 million in exchange for the issuance of 20 million Series C preference ordinary shares.
The deal also includes the resignation of four Syncora board members who were nominated by XL Capital and the termination of eight credit default swaps and related guarantee insurance policies with Merrill Lynch & Co. Inc.
The four major rating agencies reacted negatively to the deal shortly after the July announcement. A.M. Best put XL's rating under review with negative implications. Moody's also put the company's rating under review for possible downgrade. Both said they were concerned with the capital raising ability of XL.
Fitch downgraded Syncora's rating from "double-B" to "triple-C," while Standard & Poor's is keeping the company on credit watch with negative implications.
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