It seems I am hearing a growing dissent/questions amongst shareholders.
The Shareholder below is a well known investor and i have removed their name as the letter was passed to me.
If management does not fully address some of the concerns, imagine some Large Shareholders may now be inclined to break out their Battle Axes... idk, ha
While Syncora has come along way and the value is there, many are questioning The Board's latest moves, management changes... seeing that the Board of Directors may be snatching defeat from the jaws of victory.
Should make an interesting Shareholders mtg, that much is for sure,
-Denny
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This letter was sent this weekend to Syncora's Mgmt + Board of Directors:
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Mr. Michael Esposito, Chairman, and the
Board of Directors, Syncora
10-08-16
Dear Mr. Esposito and Board Members,
I realize that letters from shareholders, such as this letter, are generally, a waste of time for all involved. Nonetheless, as I have reasonable capital commitment to Syncora Common (approximately 1,000,000 shares), I feel compelled to voice my concerns. The recent announcement of management changes was a quite a shock, and honestly, disappointing.
The role of Claude Leblanc
Specifically, Claude Leblanc is the one individual at Syncora that won my confidence, and the reason that I felt comfortable investing in Syncora. It appeared to me that it was Claude that drove the commutations, the credit restructurings, and the recoveries. Further, I know that Claude earned the respect of others in this industry outside of Syncora. I suspect that other common holders share my confidence in Claude. I hope that they too will express both such confidence, and their disappointment in the Board's actions.
One concept for growth, moving forward.
To date, I have helped to introduce Claude to two well regarded capital players that might be third party sources of capital should Claude identify opportunities to acquire stressed muni's and exchange the those bonds for real assets, such as was accomplished in Detroit. If Claude was successful in one such transaction, he may well have the foundation for a public infrastructure fund, managed by Syncora. The management fees for such a fund could grow to become significant sources of income to be sheltered by the NOL's. All of this would be accomplished with no dilution to the common holders. Such strategy is clearly within the firm's fairway.
The complimentary strategy:
A true complimentary strategy to the above is to view the unregulated capital of the firm as a disciplined "value" investment fund, which has the opportunity to compound its returns, sheltered by the NOL's. The key to such is the term "disciplined", and requires investment acumen and a clear understanding of the "margin of safety".
This is a very different strategy to that which has been suggested in the firm's releases. Specifically, there has been discussion of raising additional capital and making an acquisition. The timing of such discussion is remarkable in that many of the brightest investment minds (Soros, Gross, El-Erian) are publicly cautioning on asset bubbles. Would Syncora really dilute holders at today's value and make a substantial acquisition in today's market?
To execute either strategy, Syncora needs a Board and management team that have strong investment acumen and experience. It is possible the Fred Hnat has such skills. On the other hand, if as suggested, he has a long tenure with Synocra, then he was part of the team that lacked the discipline to step back from the insurance markets in the mid 2000's when the risk/reward metrics were not attractive. It is that lack of discipline that caused substantial destruction of shareholder capital, at Syncora, and throughout the industry.
Who will in invest in Syncora Common or notes, on a going forward basis?
As a former CEO of a publicly traded firm, I know that identifying and attracting solid, patient, well regarded investors, is one of the keys to building shareholder, and in this case, noteholder value. In the recent press release, Syncora highlights Mr. Hnat's strong relationships with the investment community in England and presumably, Europe. Hopefully, he has the reputation and contacts to attract capital investment from those sources.
Within our US markets, we have some very fine value investors, both funds, and family offices, that could become substantial investors in both Syncora notes and common. While the firm has attracted some early adopters, more conservative players await substantial improvement in corporate governance. Among the best practices, I suspect are required by conservative investors are: a functional and rational Board size; substantial investment in the firm on the part of Directors; and a reasonable, and fully disclosed, compensation plan, for both management and Board.
I suspect that Syncora was beginning to attract the interest of the larger value investors in the US (I can definitely state that I suggested Syncora to at least three). I also suspect that the recent announcement will diminish the interest of these funds and families for the time being. Perhaps that is not of concern to the firm, but I imagine that is of concern to both common and note holders.
Conclusion:
Until the announcement of last week, I had been an enthusiastic holder of Syncora, and a public advocate. That is no longer the case. Perhaps Mr. Esposito and Mr. Hnat can win my confidence, I certainly hope so. I look forward to listening to both. Or perhaps, I will learn from a major holder or two, why they support the proposed changes. Or perhaps, Claude himself, will explain to me why this is good for stakeholders. I may well be wrong in my thinking.
In the interim, all I can do is implore the Board to rethink its decisions, further I will abstain from voting at this AGM, and write this letter.
Sincerely
<name withheld>
