Bond Insurer Can’t Pay
May 2nd, 2009Via: Reuters:
Sellers of protection on debt issued by bond insurer Syncora Holdings will need to make payments to counterparties after the company suspended claims payments, the International Swaps and Derivatives Association said on Friday.
Syncora, formerly known as SCA, suspended payments at the direction of the New York Insurance Department to allow it to replenish its finances and turn a policyholders deficit of $2.4 billion into a state-required minimum surplus of $65 million, a company spokesman said on Friday.
The company is the first U.S. bond insurer to suspend claims payments as it struggles to reduce losses on about $8.6 billion of residential mortgage-backed securities it insured.
The notional value of credit default swaps written on the debt of Syncora is about $18 billion, but the net value is about $1 billion, according to data from Depository Trust & Clearing Corp, which clears more than 90 percent of the market.
Credit default swaps are used to protect against the risk of a corporate, sovereign or other borrower defaulting on their debt, or to speculate on their credit quality.
The ISDA acts as administrator for a committee of dealers and investors who decide whether an event would trigger a company’s CDS.
Syncora, which has guaranteed about $140 billion of debt, mostly municipal and structured finance, is facing a May 29 deadline to meet minimum capital requirements or be taken over by New York’s insurance regulators.
A spokesman for the office of Insurance Superintendent Eric Dinallo declined to comment. The NYID could act sooner than the deadline, said the Syncora spokesman.
