© 2010 Winston & Strawn LLP
Managing the Monoline Meltdown: Restructuring the Financial Guaranty Industry
Brought to you by Winston & Strawn’s Restructuring and Insolvency Practice Group
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Today s e unch Presenters Today’s eLunch Presenters
Sam Kohn
Larry Larose
Restructuring and Insolvency New York
Restructuring and Insolvency New York
SKohn@winston com
[email protected]
LLarose@winston com
[email protected]
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Monoline Insurers (Financial Guaranty Insurer or Bond Insurer)
Monoline insurer: a company that specializes in a single p y p g type of insurance: covering bonds or asset‐backed securities.
The issuer of the bond or security is The issuer of the bond or security is “wrapped” wrapped by the rating of the by the rating of the insurer, making it cheaper for a company or municipality to raise funds.
B Benefits: fit
Insurer: stable profits from a market that historically almost never defaulted. Issuer: being “wrapped” in the credit rating of the insurer reduced borrowing costs.
Improves liquidity of security and market Lowers credit risk Lowers price volatility
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Ratings
Rating Agencies are private bodies that do independent g g p p financial analyses of issuers and offerings to determine the credit quality of the bond.
Standard & Poor Standard & Poor’ss Moody’s Fitch
Monoline insurers historically depended on retaining an AAA or AA rating or AA rating.
For insured bonds, the ratings are based on the credit of the insurer rather than the underlying credit of the issuer.
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General Structure of a Monoline Insurer General Structure of a Monoline Insurer Holding Company
Asset Management
Investment Management
Insurance Corporation
Asset Finance
International Holdings
International Insurance Corporation
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Financial Services
History
Prior to the 1970s, no significant market for municipal bond insurance.
In 1971, Ambac Financial Group introduced municipal bond insurance. Municipal Bond Insurance Association (MBIA) was formed in 1973 and was the first monoline to get rated AAA in 1974. Near default: New York City bonds in the 1970s and Washington Public Near default: New York City bonds in the 1970s and Washington Public Power system in the 1980s contributed to the rapid growth of the municipal bond insurance industry.
Post‐1989: New York State's Article 69: Limited bond insurance to monoline insurers exclusively and imposed requirements including:
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Minimum capital Aggregate risk limitations Single risk limitations Limitation on non‐investment grade securities
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Growth and Profits Growth and Profits
Business Week called municipal bond insurance “an almost perfect money machine.” (May 30, 1994)
Business increased throughout the early 1990s and early 2000s:
Focusing on MBIA, the article said the business “doesn’t seem very glamorous. But it has been producing an almost relentless flow of profits.”
MBIA: 2003 revenues: $1.9 billion AMBAC 2003 AMBAC: 2003 revenues: $1.3 billion $1 3 billi FGIC: 2003 revenues: $299 million.
Scope: Prior to the start of the financial crisis in 2007, municipal bond insurers backed roughly half of the entire municipal market.
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Expansion
Starting in the mid‐1990s, insurance companies began expanding into Asset‐Backed Securities (ABS) and Residential Mortgage‐Backed Securities (RMBS). 1995: New York State Insurance Department issued circular letter guidelines enabling the monolines to write insurance on Guaranteed Investment Contracts (GICs). 2004: New York Department of Insurance revised Article 69 of the NYIL, allowing monoline insurers to wrap collateralized debt obligations (CDOs). Many deals were “synthetic” – they involved swap transactions in which the insurer wrapped the exposure of a conduit counterparty.
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Expansion (cont’d) Expansion (cont d)
Source: Duff & Phelps Investment Management (reprinted with permission)
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2007 Financial Crisis 2007 Financial Crisis
Subprime mortgage crisis triggered by a dramatic rise in mortgage delinquencies.
Ratings Downgrades: Ratings Downgrades:
Prior to 2007, no monoline insurer had ever been downgraded or defaulted on its obligations. Rising default rates on complex RMBS led to increasing provisions and charges, thus decreasing the capital and surplus of monolines. Decreased capital and surplus led to rating downgrades of monolines. Decreased capital and surplus led to rating downgrades of monolines.
Effect:
Increasing losses related to subprime mortgages increased the likelihood that those providing the insurance would have to pay their counterparties. This resulted in deteriorating capital at banks, other financial institutions, and monoline insurers participating in the RMBS market. Required adjustments in values of structured finance assets contributed to losses.
Bond Issuers: insurance from a company with less than an AAA rating offered little value. Insurers Runoff Mode: a decreased rating limited ability to underwrite new business creating reliance on p premium income from insurance already written. y Insurers still liable to pay claims. Increased regulatory scrutiny.
September 22, 2008, NYID issued circular letter outlining "best practices" for monoline insurers including restricting their ability to insure multi‐layered insurers including restricting their ability to insure multi layered CDOs (CDO CDOs (CDO‐squared squared deals). deals).
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Restructuring
The unique legal and regulatory issues of the monoline q g g y industry have meant that restructuring techniques standard for the corporate world, including Chapter 11, have little application to the restructuring of the monoline industry application to the restructuring of the monoline industry.
The McCarran The McCarran‐Ferguson Ferguson Act: gives states the authority to regulate Act: gives states the authority to regulate the "business of insurance" without interference from federal regulation, unless federal law specifically provides otherwise. 11 U.S.C. § U.S.C. § 109 of the Bankruptcy Code: stating insurance companies 09 o t e a uptcy Code: stat g su a ce co pa es are ineligible for protection under the Bankruptcy Code.
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Restructuring Regimes Restructuring Regimes
States have different provisions for restructuring: p g
New York:
Delaware:
Article 13 § 1310 – Impairment of a Stock Insurer Article 74 – State‐supervised Rehabilitation or Liquidation p q Title 18 Insurance ‐ Delaware Regulations Supervision Rehabilitation Liquidation
Wisconsin:
Section 645.01 Insurance Rehabilitation and Liquidation Act Section 611.24(2): Optional segregated accounts.
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Challenges
Insurance companies face significant state regulatory involvement through the insurance regulations in the state they are primarily domiciled. l i i h h i il d i il d An insurance holding company could be in Chapter 11, while at the same time, the insurance subsidiary could be in a state court insolvency proceeding. y yp g Unique restructuring for the insurance company varies significantly from the restructuring of the holding company. An inherent tension between policyholders with “long tail” liabilities (e.g., municipal bonds) and policyholders with “short tail” liabilities (e.g., swaps). Legal challenges have included lawsuits by financial institutions, that created and then invested heavily in RMBS, ABS, and other structured securities and swaps that were insured by the monolines. These parties are concerned that the restructurings may limit the insurer’ss ability to pay claims. insurer ability to pay claims.
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MBIA: Background MBIA: Background
World's largest bond insurer, and a financial guarantee and investment management company. Originally known as Municipal Bond Insurance Association, MBIA was founded in 1973. I 1974 MBIA In 1974, MBIA was the first monoline insurer to achieve AAA rating status. th fi t li i t hi AAA ti t t MBIA entered the 1990s never having paid a claim in its history.1 Highlights:
1995 – completes a $75 million public offering in December. 1995 completes a $75 million public offering in December 1996– raises $55 million in January by selling 770,000 shares of common stock. 1998 –sells $150 million of 30‐year debentures. 2004 – pre‐tax operating income in the insurance business tops the $1 billion mark for the first time in the Company’s history in the Company’s history.
Beginning in 2007, as a result of subprime mortgage crisis, MBIA's surplus and capital began to deteriorate and in April 2008, it lost its AAA rating.
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MBIA: Restructuring MBIA: Restructuring
On February 17, 2009, MBIA consummated its restructuring with approval of the New York State Insurance Department.
National Public Finance Guarantee Corporation: U.S. Public Finance Insurer. MBIA Insurance Corporation: Structured Finance. MBIA Corp. received a 22% ceding commission on the unearned premium reserve. Second‐to‐Pay policy issued by National.
MBIA, INC. NPFG
MBIA Insurance C Corp.
(formerly MBIA (formerly MBIA of Illinois of Illinois Ins. Corp.) Public Finance Liabilities and Reserves minus Ceding Commission ‘Cut through’ Reinsurance of Public Finance Liabilities ‘Second-to-Pay’ Wrap of Public Finance Liabilities © 2010 Winston & Strawn LLP
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MBIA: Restructuring Advantages MBIA: Restructuring Advantages
MBIA’s Advantages: g
Creation of a new public finance‐only insurance company with a rating allowing it to write new business. Approval from New York State Insurance Department Approval from New York State Insurance Department. Larger and better capitalized than its two closest competitors.
Prosecuting Significant Claims:
MBIA has brought significant lawsuits against arrangers of numerous structured finance deals it insured, including against Countrywide and , g g y Merrill Lynch, alleging misrepresentations and breaches of contract.
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MBIA: Current Status MBIA: Current Status
Ratings:
Moody’s March 2010: National Public Finance Guarantee: Baa1 IFS, developing outlook MBIA Corp: B3 IFS, negative outlook (based on legal challenges) S&P September 2009: National Public Finance Guarantee: A, developing outlook MBIA Corp: BB+, negative outlook (based on legal challenges)
Financial results—June 30, 2010:
MBIA Inc. recorded net income available to common shareholders of $1.3 billion, or $6.32 per MBIA Inc. recorded net income available to common shareholders of $1.3 billion, or $6.32 per share, for the second quarter of 2010, compared with net income of $895 million, or $4.30 per share, in the second quarter of 2009. Statutory Capital for 2nd Quarter 2010 (dollars in millions): MBIA Insurance Corp. $3,266.6 p National $2,189.5 Total claims paying resources (dollars in millions): MBIA Insurance Corp. $5,458.7 National $5,544.6 National $5,544.6
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MBIA: Legal Challenges to Restructuring MBIA: Legal Challenges to Restructuring Aurelius Capital Master Ltd., et al., (Richard J. Sullivan, presiding) M h 11 2009 i h S h March 11, 2009, in the Southern District of New York. Di i fN Y k Aurelius et al., contends that the transfers comprising the transformation constituted either actual or constructive fraud, breach of implied covenant of good faith and fair dealing. Motion to dismiss denied: February 11, 2010. S h d li Scheduling order entered August 30, 2010, providing for mutual discovery to be completed no later d dA 30 2010 idi f l di b l d l than October 17, 2011.
Third Avenue Trust and Third Avenue Variable Series Trust hi d d hi d i bl i ( (James A. Yates, presiding) idi ) Initially filed in the Court of Chancery for the State of Delaware, Reinstituted December 21, 2009 in the Supreme Court of the State of New York. Third Avenue Trust et al., claims breach of contract and contends that the transfers comprising the transformation constituted either actual or constructive fraud transformation constituted either actual or constructive fraud. Preliminary conference adjourned until October 27, 2010.
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MBIA: Challenges to Restructuring (cont’d) MBIA: Challenges to Restructuring (cont d) ABN AMRO Bank N.V., et al., (Plenary Action. James A. Yates, presiding) M 13 2009 i h S May 13, 2009, in the Supreme Court of the State of New York C f h S fN Y k Contends that the transfers comprising the transformation constituted fraudulent conveyance, breach of contract joint and several liability under Plaintiff’s insurance policies, and unjust enrichment. Motion to dismiss denied February 17 2010 Motion to dismiss denied, February 17, 2010. Preliminary conference adjourned until October 27, 2010. Decision is being appealed: Argued in the First Department on June 2, 2010.
ABN AMRO Bank N.V., et al., vs. Eric Dinallo, Superintendent of the New York State Insurance Department, k l i i ll i d f h k the New York State Insurance Department, MBIA Inc., MBIA Insurance Corp., and MBIA Insurance Corp. of Illinois (Article 78 Proceeding. James A. Yates, presiding) June 15, 2009, in the Supreme Court of the State of New York The case is intended to supplement a fraud lawsuit filed earlier by the banks The case is intended to supplement a fraud lawsuit filed earlier by the banks. The lawsuit challenges the support given to the split by then‐New York State Insurance Commissioner Eric Dinallo. The outcome of the Article 78 proceeding will likely affect the direction of the other lawsuits as it could either add credence to or weaken the plaintiffs' allegations. could either add credence to or weaken the plaintiffs allegations Preliminary conference adjourned until October 27, 2010.
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MBIA: Challenges to Restructuring (cont’d) MBIA: Challenges to Restructuring (cont d)
Primary Defense: Collateral Attack Doctrine
MBIA defense to plenary action: A challenge to the plan approved by the Superintendent of the New York State Insurance Department (NYID) constitutes a “collateral attack” on the NYID’s authority and can only be brought in an Article 78 proceeding. Article 78 of the NYCPLR establishes the procedure for challenging the determinations of administrative agencies, public bodies or officers. d i i t ti i bli b di ffi New York Insurance Law § 326 states that decisions of the Superintendent are to be subject to judicial review only in Article 78 proceedings. After conducting an independent examination of the financial conditions of both MBIA and National both before and after the transactions were consummated the Superintendent National, both before and after the transactions were consummated, the Superintendent approved the plan. In order for the Bank’s claims to succeed, the court must rule that the NYID’s approval was “arbitrary, capricious or an abuse of discretion” or a violation of law. New York courts have held that where a plenary action directly against an insurer requires New York courts have held that where a plenary action directly against an insurer requires adjudication of “the very issue necessarily encompassed” in a decision of the Superintendent, such plenary action must be dismissed and any claims adjudicated in an Article 78 proceeding. E.g., Shah v. Metro, Life Ins. Co., No. 108887/00, 2003 WL 728869 (Sup. Ct. N.Y. County Feb. 21, 2003), aff’d in part and rev’d in part on other grounds, Fiala v. M t Lif I C 6 A D 3d 320 (1 t D ’t 2004) Metro. Life Ins. Co., 6 A.D.3d 320 (1st Dep’t. 2004).
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Ambac Financial Group: Background Ambac Financial Group: Background
Founded in 1971 by MGIC Investment Corp. as American Municipal Bond Assurance Corp., AMBAC AMBAC was initially the dominant player in the municipal bond insurance business. i i i ll h d i l i h i i lb di b i Ambac Financial Group, Inc. (AFG), incorporated in 1991, is the primary holding company. Ambac's principal operating subsidiary, Ambac Assurance Corporation (AAC), is a guarantor p p p g y, p ( ), g of public finance and structured finance obligations. In 2008 AAC was the second‐largest bond insurer in the United States with over $524 billion of debt insured of debt insured. AAC headquarters are in New York but it is regulated by the insurance commission of Wisconsin. In 1979, AAC received a AAA rating, which it held until 2008.
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Ambac: Financial Challenges Ambac: Financial Challenges
In June 2008, Moody's downgraded AAC's credit rating three notches to Aa3, ratings continued to decline during 2008‐2010. i d d li d i 2008 2010 In December 2008, AAC discontinued writing new investment agreements and derivative products. In 2008, AAC began implementing a business strategy that included:
discontinuation of writing new business in the Financial Services segment, stopping quarterly dividend payments, and creating a stand‐alone legal entity for new municipal‐only bond insurance (Everspan Financial Guaranty Corp., formerly Connie Lee Insurance Company).
On November 10, 2009, AFG issued a warning to its shareholders that it might not have enough cash to meet its obligations starting as early as the second quarter of 2011. Regulators were concerned claims payments on RMBS wraps amounting to over $120 million a month would drain AAC, leaving other policyholders with no or reduced protection. g p y p
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Ambac: Restructuring ‐ March 24, 2010 Ambac: Restructuring March 24, 2010
The Wisconsin Commissioner of Insurance intervened before an out‐of‐court restructuring plan was implemented. A Segregated Account of AAC was created pursuant to Section 611.24(2) of the Wisconsin Statutes with the approval of the Wisconsin Office of the Commissioner of Insurance Commissioner of Insurance. The Segregated Account was placed in a judicial rehabilitation proceeding by order of the Circuit Court of Dane County, Wisconsin. The court entered a temporary injunction order that until further order of the The court entered a temporary injunction order that, until further order of the court:
(a) prevents the exercise of certain contractual ipso facto provisions, (e.g., no acceleration of obligations); (b) enjoins payment of claims or obligations without consent from the Commissioner or his (b) enjoins payment of claims or obligations without consent from the Commissioner or his authorized representatives; and (c) requires the continued payment of premiums to maintain policies in force. The court further ordered that any interested party could seek modification or dissolution of the injunction in whole or in part by filing a written motion by June 22 2010 injunction, in whole or in part, by filing a written motion by June 22, 2010.
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Ambac: Restructuring ‐ Segregated Account
Segregated Account of AAC: g g
Under Wisconsin insurance law, the Segregated Account is treated as a separate insurer from AAC for purposes of rehabilitation. AAC itself is not subject to rehabilitation nor is AAC under the AAC itself is not subject to rehabilitation, nor is AAC under the supervision of the Rehabilitator. However, AAC has agreed to significant oversight and other requirements of the Commissioner as p part of the rehabilitation. Policies and other liabilities were allocated to the Segregated Account if they had current or projected material impairments or contractual triggers creating a risk of default based upon AAC’s financial condition gg g p or the existence of rehabilitation proceedings. Segregated Account is supported by a $2 billion secured note due y gg g 2050 issued by AAC and an aggregate excess of loss reinsurance agreement (“XOL”) provided by AAC.
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Ambac: Restructuring ‐ Segregated Account (cont’d)
XOL available to pay only Policy Liabilities and Surplus Notes p y y y p Stated intention is to pay Policy Liabilities @ 25% in cash and remainder in Surplus Notes issued by AAC or Segregated A Account t
10‐year term 5.1% interest rate, payment subject to OCI approval Covenant protection
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Ambac: Restructuring ‐ Segregated Account Structure
Segregated Account (In Rehabilitation) Assets: •$2 billion secured note due 2050 f 2050 from AAC AAC •Excess of Loss Reinsurance Agreement from AAC
AAC (General Account)
Liabilities: •Policies and Bonds •RMBS •Las Vegas Monorail •Student Loans •Certain CDO/CDS •Office Leases •Reinsurance Agreements
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Ambac: Restructuring Plan Ambac: Restructuring Plan
Claims Payment in Segregated Account:
Surplus Notes (from General Account or Segregated Account) and Cash drawn from secured note. XOL to pay only Policy Liabilities and Surplus Notes.
“Deal” with ABS‐CDO policyholders: on June 7, 2010, AAC entered into a settlement agreement settlement agreement.
CDS Settlement is a commutation transaction between the General Account and certain financial institutions that were counterparties to credit‐default swaps wrapped by Ambac Credit Products (a wholly owned subsidiary of AAC) that were guaranteed by AAC. In exchange for the termination of 16.4 billion of ABS CDO obligations, AAC paid the counterparties In exchange for the termination of 16.4 billion of ABS CDO obligations, AAC paid the counterparties $2.6 billion in cash, and $2 billion of newly issued AAC surplus notes.
The surplus notes have a scheduled maturity of June 7, 2020. Interest on the surplus notes is payable at the annual rate of 5.1%. All payments of principal and interest on the surplus notes are subject to the prior approval of the Office of the Commissioner of Insurance of the State of Wisconsin h C i i fI f h S f Wi i
On September 28, 2010, the Rehabilitator published a notice announcing that he anticipates filing a Plan of Rehabilitation during the week of October 5, 2010. In p , g , anticipation, the Court has set a scheduling conference for October 14, 2010.
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Ambac: Current Status Ambac: Current Status
Ratings:
Surplus:
Caa2 (on review for possible upgrade) (Moody’s May 2010) R from CC (S&P March 2010) Statutory surplus of AAC increased to approximately $1.5 billion at June 30, 2010, from $160.2 million at March 31, 2010, driven primarily by the CDO of ABS commutation settlement on June 7, 2010 as part of the recent restructuring plan.
Short‐term obligation: AFG has $142.5 million of principal debt maturing August 8, 2011. Profits: Second quarter 2010 net loss of $57.6 million. q $ Further Issues:
Potential delisting by the New York Stock Exchange (NYSE). Indications AFG will file for Bankruptcy. Some of AFG's senior debt holders have formed an ad hoc committee as AFG plans for bankruptcy Some of AFG's senior debt holders have formed an ad hoc committee as AFG plans for bankruptcy. On September 28, 2010, Ambac Assurance Corp. filed suit against Countrywide Home Loans Inc., in New York State Supreme Court, claiming Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans.
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Ambac: Legal Challenges to Restructuring Ambac: Legal Challenges to Restructuring
Third parties sought to enjoin the consummation of the CDS Settlement.
Initial challenges to the CDS Settlement were brought by:
Aurelius Capital Management et al., and their respective managed funds (the “RMBS Investors”); and Certain beneficial holders of the Las Vegas Monorail Project Revenue Bonds (the “LVM g j ( Bondholders”). A number of other institutions, including Bank of New York Mellon and Deutsche Bank National Trust Co. joined these challenges to the CDS Settlement, in whole or in part.
On May 27, 2010, the court entered an order denying all challenges to the CDS y , , y g g Settlement, and the CDS Settlement was consummated on June 7, 2010. The RMBS Investors, the LVM Bondholders, and Federal Home Loan Mortgage Corp. are appealing from the court’s May 27, 2010 order.
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Ambac: Legal Challenges to Restructuring (cont’d)
A number of third parties have objected to the creation and rehabilitation of the Segregated Account on constitutional, statutory and common law grounds.
The first such challenges was filed by Wells Fargo Bank, N.A., as trustee for the LVM b dh ld bondholders and by RMBS investors. The LVM Bondholders also objected to the d b RMBS i t Th LVM B dh ld l bj t d t th allocation of their policies to the Segregated Account as discriminatory. These motions were denied in an order entered on July 16, 2010. The challengers filed appeals. On September 13, 2010, the RMBS Investors and LVM Bondholders filed appeal briefs.
Further parties are requesting the Court issue an order clarifying that the temporary injunction does not enjoin the moving parties from filing a complaint in New York.
The proposed New York suits seek to enjoin AAC's parent, AFG, from accepting dividend payments from AAC and utilizing AAC's net operating losses without consideration being paid to AAC The lawsuits contend that this would be a fraudulent conveyance being paid to AAC. The lawsuits contend that this would be a fraudulent conveyance.
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Syncora Holdings: Background Syncora Holdings: Background
Bermuda‐domiciled holding company, formerly Security g p y, y y Capital Assurance Limited.
In 2008, XL Capital Assurance Inc., the primary insurance arm of Syncora Holdings Ltd legally changed its name to Syncora Guarantee Syncora Holdings, Ltd., legally changed its name to Syncora Guarantee Inc. In 2006, XL Capital Ltd had consolidated assets of approximately $58.5 billion and consolidated shareholders' equity of approximately $8.5 billion and consolidated shareholders equity of approximately $8 5 billion. The XL Capital group was rated A+ by AM Best and a number of XL group companies were rated A+ & A by Standard and Poor'ss, and Aa3 group companies were rated A+ & A by Standard and Poor and Aa3 by Moody's. 2008‐2009: struggles to reduce losses related to $8.6 billion of RMBS it insured it insured.
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Syncora: Restructuring Syncora: Restructuring
On April 10, 2009, New York Insurance Department issued an order pursuant to Section 1310 of the New York Insurance Law, prohibiting Syncora Guarantee from paying claims until it had removed the impairment to its statutorily mandated minimum surplus to policyholders.
On July 17, 2009, New York State Insurance Department approved the restructuring of On July 17 2009 New York State Insurance Department approved the restructuring of Syncora Guarantee Inc, allowing:
a series of transactions moving nearly a $4 billion deficit to a surplus of approximately $180 million. reinsurance for Syncora’s municipal bond business by a newly formed, well‐capitalized subsidiary, Syncora Capital Assurance Inc. $1.2 billion commutation payment to policyholders who entered into credit default swaps on collateralized debt obligations on asset‐backed securities. reduced RMBS liabilities through a voluntary tender process that offered upfront cash payments to policyholders in exchange for their insurance coverage. Nearly 70% of the RMBS exposure was tendered and accepted.
On July 20, 2010, Syncora announced completion of its remediation plan sufficient to meet its minimum statutory policyholder surplus requirements and address previously announced short‐and medium‐term liquidity issues, and issuance by NYID of section 1310 order approval to start paying claims. pp p y g
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Financial Guaranty Insurance Company (FGIC): Background
Established in 1983. In 1994, FGIC had total assets of approximately $2.1 billion and qualified statutory capital of approximately $1.2 billion. FGIC had a claims‐paying ability rating of "AAA" by S&P and Fitch, and "Aaa" by Moody's. FGIC has insured municipal bonds totaling about $224 billion in principal amount and RMBS totaling about $72 billion in principal amount.
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FGIC: Financial Difficulties FGIC: Financial Difficulties
FGIC stopped paying dividends to parent FGIC Corp. in 2008 due to deterioration in the U.S. housing and mortgage markets.
As a result of FGIC's inability to remit dividends to it since 2008, it was unable to satisfy its obligations under its revolving credit agreement.
In 2008, all three major credit rating agencies downgraded its status. In 2009, the rating agencies withdrew their ratings entirely. On September 30 2008 with the approval of the NYID FGIC sold its public On September 30, 2008, with the approval of the NYID, FGIC sold its public finance book of business to MBIA via reinsurance. Continuing losses stemming from FGIC‐insured mortgage securities resulted in p y policyholder surplus deficit of approximately $1.28 billion as of December 31, p pp y , 2009.
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FGIC: Surplus Restoration Plan FGIC: Surplus Restoration Plan
On November 24, 2009, the New York Insurance Department issued an order pursuant to Section 1310 of the New York Insurance Law prohibiting FGIC from paying claims until it had removed impairment to its statutorily mandated minimum surplus to policyholders. On December 22 2009 FGIC submitted a "Surplus On December 22, 2009, FGIC submitted a Surplus Restoration Plan Restoration Plan" to the New to the New York Insurance Department. An amended and restated Plan was submitted on March 24, 2010. Intended to remediate its exposure RMBS and ABS CDO. p Under the plan, FGIC has taken the following steps:
Commenced a tender offer for the acquisition or exchange of certain RMBS insured by FGIC; Continues to pursue commutations with the holders of ABS CDOs; and Commute, terminate, or restructure FGIC's exposure with respect to other obligations for which it had established statutory loss reserves.
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FGIC: Current Status FGIC: Current Status
In Re: FGIC Corp., U.S. Bankruptcy Court, Southern District of New York (Manhattan)
On Aug. 3, 2009, FGIC Corp. filed for Chapter 11 Bankruptcy protection and is seeking to reorganize. None of the company’s subsidiaries or affiliates, including its wholly‐owned division, Financial Guaranty Insurance, its bond insurance unit, are part of the Chapter 11 filing.
FGIC is continuing its efforts to effectuate the Surplus Restoration Plan, including the tender offer for certain RMBS and ABS insured by FGIC for a cash payment and cash flow trust certificates cash payment and cash flow trust certificates.
The exchange has been extended to October 22, 2010. Results of restructuring are uncertain.
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Conclusion
Concluding remarks Concluding remarks
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Questions?
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Thank You.
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Contact Information Contact Information
Samuel S. Kohn
Lawrence A. Larose
Restructuring and Insolvency New York
Restructuring and Insolvency New York
(212) 294-5367
[email protected]
(212) 294-3286
[email protected]
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