Syncora Holdings Ltd. Announces 2014 GAAP Financial Results

HAMILTON, Bermuda, April 29, 2015 /PRNewswire/ -- Syncora Holdings Ltd. ("SHL" or the "Company"), a Bermuda holding company whose subsidiaries primarily provide financial guarantee insurance and reinsurance, today reported results for the year ended December 31, 2014.

Susan Comparato, Chief Executive Officer of Syncora Holdings Ltd., said "While Syncora accomplished a number of significant goals in 2014, including the successful remediation of its Detroit exposures, we have been navigating a very challenging market environment. We continue to pursue remediation activities and explore the other strategic options discussed during our November Investor Update call in our efforts to position the Company to maximize value for all stakeholders."

A detailed description of the Company's strategic initiatives can be found in footnote 2 to the GAAP financial results.

2014 Year-to-Date Results

This release presents information on the Company's December 31, 2014 financial results.  We anticipate filing SGI's and SCAI's first quarter statutory financial statements on or before May 15, 2015.

Consolidated Statements of Operations

Net premiums earned were $69.8 million in 2014, as compared to $132.7 million in 2013.  The decline resulted primarily from the orderly run-off of the insured portfolio and the effects of management's active remediation initiatives.

Net (loss) earnings on insurance cash flow certificates, which represent expected future cash flow receipts from certain remediated insurance, was $(165.4) million in 2014, as compared to $232.6 million in 2013.  This reduction primarily reflects the reclassification of $124.9 million of future receipts associated with remediated Detroit exposures into variable interest entity ("VIE") assets, as further described below.

Net gain on fair value of credit default and other swap contracts was $123.9 million in 2014, as compared to $21.6 million in 2013.  The increase was primarily due to collateral spread tightening as a result of improvements to the underlying reference obligations, as well as the Company's non-performance risk spread widening.

Net (loss) on fair value of consolidated variable interest entities was $(58.5) million in 2014, as compared to $(108.6) million in 2013.  The net (loss) in 2014 was primarily a result of a $66.7 million  write-off of the Detroit-related VIE in connection with the settlement and related extinguishment of the City of Detroit's debt upon emergence from bankruptcy in December 2014.        

Net recoveries and loss adjustment expenses was $18.2 million in 2014, as compared to $397.3 million in 2013.  The decrease in recoveries was primarily due to the 2013 recognition of the RMBS litigation settlement with JP Morgan and Jefferson County settlement, as well as increased reserves (net of recoveries) of $166.2 million during 2014, partially offset by a $184.4 million reduction to reserves as a result of the Detroit settlement.  The increase in reserves in 2014 resulted primarily from $56.7 million of adverse developments on the Company's Puerto Rico Electric Power Authority ("PREPA") exposure, and $127.5 million from the establishment of reserves for certain distressed U.S. structured single risk exposures with existing or expected claims.

Operating and interest expenses were $(150.9) million in 2014 compared to $(124.3) million in 2013.  The increase was primarily due to higher interest expense on SGI's surplus notes and the inclusion of a full year of Pike Pointe Holdings, LLC operating expenses in 2014 as compared to only four months of operating expenses in 2013.                

Consolidated Balance Sheets

Total cash and invested assets increased by $152.5 million to $1,686.7 million at December 31, 2014 from $1,534.2 million at December 31, 2013.  This increase was primarily due to the receipt of $400.0 million of cash related to the settlement with JP Morgan, offset by remediation related payments of $181.8 million as well as operating, litigation and other related expenditures of $106.9 million.

Salvage and subrogation recoverable decreased by $395.2 million to $72.8 million at December 31, 2014 from $468.0 million at December 31, 2013.  The decrease was primarily due to the $400.0 million of cash received from the settlement with JP Morgan which reduced the benefit for this settlement that was accrued at December 31, 2013.

Receivables on insurance cash flow certificates, which represent anticipated future claim payments on certain remediated policies, decreased by $79.5 million to $376.3 million at December 31, 2014 from $455.8 million at December 31, 2013.  The decrease was primarily due to the reclassification of future receipts associated with remediated Detroit exposures into VIE assets, as well as positive RMBS reserve developments during the year. 

Assets of consolidated VIEs decreased by $95.5 million to $251.0 million at December 31, 2014 from $346.5 million at December 31, 2013 primarily as a result of Detroit's emergence from bankruptcy, which resulted in the write-off of the Detroit-related VIE.  

Unpaid losses and loss adjustment expenses decreased by $189.7 million to $1,169.8 million at December 31, 2014 from $1,359.5 million at December 31, 2013.  Lower unpaid losses were driven primarily by remediation activities resulting in the release of $295.6 million of reserves, partially offset by higher reserves in the current year relating to PREPA and certain structured single risk transactions. 

Net credit default and other swap contract liabilities decreased $114.2 million to $240.0 million at December 31, 2014 from $354.2 million at December 31, 2013 mainly as a result of collateral spread tightening due to improvements in the underlying reference obligations, as well as from the Company's non-performance risk spread widening.  In addition, in November 2014, the Company commuted certain credit default swap exposures resulting in the derecognition of $73.9 million and $73.2 million of related credit default assets and liabilities, respectively.

Adjusted Book Value

This earnings release references adjusted book value ("Adjusted Book Value"), a financial measure that is not calculated in accordance with GAAP.  While the Company does not manage its business or measure its performance using non-GAAP measures, such as Adjusted Book Value, we have included this measure because we believe it provides investors with important additional information to compare the Company to other financial guarantors.  Adjusted Book Value as calculated does not consider timing or amount, if any, of payments on SGI's surplus notes which would require NYDFS approval, dividend restrictions under New York Insurance Law applicable to the insurance subsidiaries and contractual constraints with respect to any dividend payment. Reference should be made to Note 20 in the financial statements for the year ended December 31, 2014.  In addition, because other financial guarantors may calculate Adjusted Book Value or similarly titled measures differently, or may not be subject to the restrictions noted above, Adjusted Book Value is not necessarily comparable to similarly titled measures reported by other financial guarantors.  

Set forth in the table below is a reconciliation of GAAP common shareholders' equity reported by us at December 31, 2014 and 2013, respectively, to Adjusted Book Value at such dates.  Non-GAAP financial measures should not be viewed in isolation or as substitutes for their most directly comparable GAAP measures.

1. Elimination of after-tax deferred acquisition costs as these amounts represent net deferred expenses that have already been paid and will be expensed in future accounting periods.
      
2. Elimination of the effects of consolidating VIEs, as GAAP requires the Company to consolidate certain VIEs that (a) have issued debt obligations that are insured and controlled by the Company and (b) were designed to effectively defease or, in-substance, commute the Company's exposure on certain of its other financial guaranty insurance policies.  Excluding the effects of consolidating VIEs presents all financial guaranty contracts and remediation transactions on a more consistent basis of accounting, whether or not GAAP requires consolidation.
      
3. Elimination of the consolidated net credit derivative liability which represents an estimate of the fair value of the Company's guarantees issued as CDS contracts in excess of the present value of the expected losses.  By excluding the net credit derivative liability, this metric eliminates the benefit to our shareholders' equity embedded therein from the Company's non-performance risk, which reflects the market's view of the risk that the Company will not be able to financially honor its obligations as they become due.  The fair value adjustments on derivative financial instruments are heavily influenced by, and fluctuate, in part according to, market interest rates, credit spreads and other factors that management cannot control or predict and that are not expected to result in an economic gain or loss.  In addition, by including our best estimate of losses we expect to incur on our CDS contracts if we were to hold such CDS contracts to maturity and pay claims as they arise over the remaining life of such contracts, the metric presents our guarantees of insurance and derivatives on a consistent basis, which results in a more meaningful measure of our value.
       
4. Addition of the after-tax net present value of estimated net future credit derivative revenues.  Including the net present value of estimated net future credit derivative revenues enables an evaluation of the value of future estimated credit derivative revenue for which there is no corresponding GAAP financial measure.
      
5. Addition of the after-tax value of the unearned premium reserve on financial guaranty contracts in excess of expected losses to be expensed, net of reinsurance as the unearned premium reserve on financial guaranty contracts represents revenues that are expected to be earned in the future.
      
6. Addition to the full face amount, in excess of the carrying amount, of the surplus notes payable held by third parties (including interest paid-in-kind), as including the full face amount of the surplus notes is consistent with the treatment of these instruments as debt.
     
7. Elimination of the after-tax unrealized gains (losses) on the Company's investments that are recorded as a component of accumulated other comprehensive income ("AOCI").  The effects of the AOCI component of the fair value adjustment on investments is not deemed economic as the Company generally holds such investments to maturity and therefore the Company should not recognize an economic gain or loss.
      
8. Addition of the excess of the outstanding liquidation preference of the SHL Series A perpetual non-cumulative preferred shares and the SGI Series B non-cumulative preferred shares over their carrying values.  Including the SHL Series A perpetual non-cumulative preferred shares and the SGI Series B non-cumulative preferred shares at their outstanding liquidation value (which, for the SGI Series B, is net of the shares received in connection with our 2012 settlement with Countrywide, Bank of America Corp.) instead of their carrying value is more in line with the residual value to common shareholders.
       
9. 84,584 shares of SHL Series A preferred stock received by SGI in February 2015 in connection with the 2012 settlement with Countrywide, Bank of America Corp. are not reflected as an increase to Adjusted Book Value in the above measure as this transfer took place in 1Q2015.    

        

Conference Call and Webcast Details

Syncora will host a call at 8:30am EDT, tomorrow, Thursday, April 30, 2015, to discuss the Company's financial results for the period ending December 31, 2014, which will be accessible via webcast on the Investor Events page of the Investor Relations section of www.syncora.com or by dialing (877) 512-9165 (U.S. toll-free), or +1 (706) 679-5795 outside the U.S., Puerto Rico and Canada, approximately 10 minutes prior to the scheduled start time and providing conference ID # 295-73-183. A presentation to accompany the call will be available on the Investor Events page. Following conclusion of the call, the Company will post a transcript on its website alongside a replay of the webcast.  The replay will also be available via telephone by dialing (855) 859-2056 (U.S. toll-free), or +1 (404) 537-3406 outside the U.S., Puerto Rico and Canada, and providing conference ID # 295-73-183.

About Syncora Holdings Ltd.
Syncora Holdings Ltd. (OTC: SYCRF) is a Bermuda-domiciled holding company. Further information can be found on www.syncora.com.

Forward Looking Statements

This release contains statements about future results, plans and events that may constitute "forward-looking" statements. We caution you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control. These risks and uncertainties include, but are not limited to, the factors described in the Company's historical filings with the NYDFS, and in the Company's, Syncora Guarantee Inc.'s and Syncora Capital Assurance Inc.'s GAAP and statutory financial statements posted on its website at www.syncora.com.  Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements are made.

Contact:
Michael Corbally
Syncora Holdings Ltd.
1-212-478-3672

SOURCE Syncora Holdings Ltd.

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