After a series of negative rating remarks, Moody's this week said it might upgrade guaranty insurer Syncora Guarantee Inc. and its partner companies after it completed a deal that would give the company $1 billion in surplus.
The New York-based rating service announced earlier this week that it placed the insurance financial strength rating of "B2″ on rating watch for possible upgrade. The action also includes the company's affiliates Syncora Guarantee (U.K.) Ltd. and Syncora Guarantee Re Ltd.
All three are part of Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd.), for which Moody's confirmed the provisional rating on senior debt at "Caa3″ with a negative outlook.
The announcement follows an agreement between Syncora and Hamilton, Bermuda-based insurer XL Capital, Ltd., where XL will pay Syncora close to $2 billion in combination cash and stock. In return XL will terminate, commutate or restructure financial guarantee and reinsurance arrangements with Syncora.
In concert with the deal, Syncora canceled eight credit default swaps with Merrill Lynch & Co. in return for $500 million cash.
Moody's cited improved capital adequacy following completion of the deals as reasons why it is eyeing an upgrade.
Earlier in the week all four of the major rating agencies reacted negatively shortly after the deal was announced. A.M. Best put XL's rating under review with negative implications. Moody's put the company's rating under review for possible downgrade. Both said they were concerned with the capital raising ability of XL.
Yesterday, Moody's confirmed the "A1″ insurance financial strength rating on XL noting the company raised additional capital.
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.
(This story was updated at 3:30 p.m.)
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