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Maybe they really meant to say that the financials will be posted after the close on Wednesday, and then the call will be Thursday morning?
Will financials be posted today?
I thought that's what the PR said, but maybe I misunderstood. It's getting late...
Turning out better than even I had expected... Syncora has THE BEST management team..,
We should be up $1, not a few pennies.
Common shareholders' equity went up 85 Mill to 250 mill, or $4.25/share. This is one way to calculate book value.
Another way would be to use total shareholders equity, which hasn't changed, is 425 mill, or $7.19/share
The calculations do not reflect additional recoveries from Greenpoint or Lehman.
No big haircuts for Prepa
That's the significance of the news that came out yesterday, that some of the leading hedge funds in the country are Prepa bondholders.
Some hedge funds may have bought at par when Prepa raised capital in the last few years, some may have bought in the secondary at discounted prices in the 60's where Prepa was trading June, or maybe they bought in the last few weeks in the high 30's, 40's or 50's.
Regardless of the entry point, hedge funds know how to enforce a contract, and will not take pennies on the dollar. In fact, there may not be any haircuts at all.
Ask yourself this question: if you were a hedge fund manager with 200-500 mill invested in Prepa bonds earning 7-8% per year tax-free, would you rather:
1.take a 10-20% haircut on your Prepa position
2. provide more capital so that Prepa can transform its operations from oil to natural gas. This way, the bonds would continue to make all interest payments, and the new money invested would also earn a nice rate, triple tax exempt, in the current environment of record low yields.
I would choose scenario no 2.
Lincoln, I agree 100% with everything you wrote. Excellent post, very well articulated & documented, thanks very much for putting it together.
It's been clear to me for a long time that Snowball is not here just to share his views about the company, but rather has an agenda, which is to get as many people as possible to sell their shares. It was true when the stock was trading at 40-50 cents in the summer and fall of 2013, and it is just as true now when the stock is trading under $2. Nothing has changed, same strategy, same talking points.
In my book, this is extremely bullish. It shows that Syncora shares are in high demand. We already know that Brigade Capital owns preferred stock. There is a 5% limit on the preferred, so I suspect a bunch of hedge funds own just under 5% each. We don't know who owns Syncora common yet, but that information may come out in short order as well. There has been clear accumulation in the stock, with retail investors providing shares and someone with big pockets gobbling up.
The nonsense in the Detroit media has reached a fever pitch... a settlement is probably only days away now. Snyder & Orr will say that they had to give the COPs a decent deal, otherwise the evil creditors and especially Syncora would have kept Detroit in bk, and they had to defend the working folks, and the art of the city, and the pensions, and the future of Detroit... Blah, blah, blah. What a load of crap, absolutely disgusting...
I really hope Snyder loses in the fall, he is the worst kind of politician. But in the meantime, we'll get a decent deal. Our exposure to COPs has shrunk dramatically (down to 100 mill), but we should be able to reverse some loss reserves.
As far as the bashing Syncora has received in the Detroit press, I think it's the best free advertising ever. After being out of the market for 6 years, hit very hard by the financial crisis, Syncora has emerged as the leading opponent of Orr's abusive strategy, a fierce defender of creditor rights. Syncora has shown that it can execute a smart, take-no-prisoners approach and singlehandedly turn the tide in a process that looked like an absolute disaster for creditors when it first started a year ago.
Who cares how Joe on Main Street feels about Syncora, we don't sell directly to the public. We do business with financial firms, who are all creditors. We're scoring major points with the people who matter.
Moving small blocks, sometimes only 100 or 500 shares and lowering the bid in order to hit stops and shake the weak hands.
In all my years of trading, I've never seen such blatant and obvious manipulation.
Thanks for another chuckle, Snowball. Yup, sure lawyer fees will bankrupt Syncora... ahem, absolutely. I can't stop laughing.
Maybe Snowball needs a vacation. Or a new assignment. This one seems to be taking a heavy toll
Shake, shake, shake...
And Snowball trying to scare people, desperately urging everyone to sell, sell, sell...
I love the setup :)
Rock, are u still around buddy?
We haven't heard from you in a long time. Hope all's well
Snowball wrote: "No real interest in the stock/company."
Yeah, so true... which is why Brigade Capital bought preferred stock. And then teamed up with other preferred holders (probably other hedge funds, we don't know the names yet, but we might get more info soon) to demand a special meeting.
They did all this because THERE IS NO INTEREST IN THIS COMPANY.
Good job, Snowball. I can't stop laughing...
Yup, financials are out and here are some quick notes:
*SGI policyholder surplus 929.8 mill, down around 34 mill from the March level. The decrease is due to the charge of about 37 million taken on the Prepa exposure. Given that overall Prepa exposure is 233 mill, this equates 15% of insured par, a HUGE reserve, extremely conservative to say the least
*Detroit COPs exposure is down to 101 mill from 189 mill as of March 31. Once again, this includes insured COPS, the interest rate swap as well as COPs owned directly. This is very good news
*Doesn't look like Syncora has exppsure to any other public corps in Puerto Rico besides Prepa. Total Prepa exposure is 233 and the rest is all GO's. Looks pretty benign to me.
We are now well reserved on Prepa. However, all this may prove to be unnecessary if Prepa muddles thru. Also, we should be able to reverse 30-50 mill in Detroit loss reserves once the circus reaches a settlement in the very near future.
Sorry to butt in. I just read the press release. Ambac took a huge charge of $6/share related to some interest on surplus notes. The other items looked pretty good, lower RMBS losses, small reserve for PR pretty benign.
So it's not an industry problem, it has to do with their rehab plan or whatever is called.
Why should the monolines build reserves for Prepa when Prepa just made the July interest payment in full?
Doesn't make any sense to me. The monolines might agree to some concessions in the LOC negotiations, but it doesn't have to be haircuts. It can be subordination, or a slightly lower coupon for the next 1 or 2 years. Luckily, the impact on the balance-sheet would be small, so why build reserves?
Oldham, thanks buddy! It's great to see you here too! I was on the road a lot, and my smartphone is getting old.
It was probably a good thing that I couldn't post for a while. The Prepa coverage in the media has been absolutely horrible. You guys were saved from reading my angry rants.
Anyways, I'm back now, and it's great to find the board so active!
I think the pay day is getting close
Snowball, you're way too obvious sometimes...
Syncora will pay $2 million to settle the entire ARPA claim, a VERY favorable settlement for us. And Syncora has joined the lawsuit against one of the manufacturers, so we may get most of the $ back.
As far as today's news about the hedge fund, only you can put a negative spin on it. How on earth can you preserve the preferred while wiping the common? Impossible given our balance sheet at this point.
Seriously, in order to be an effective basher, you have to give the appearance of fairness, not just put the most negative spin on everything
Shaking the tree hard... In the past, they did this before good news came out....
I'm holding tight
Why make the July payment if the plan was to restructure Prepa?
IMHO, if the plan was to implement a restructuring, the best course of action would have been to withhold the July 2nd interest payment, make no effort to renegotiate the agreement with the lenders so they could call an event of default a few days later.
Instead, Prepa paid almost half a billion in interest, then negotiated with the lenders quickly and got them to remove the penalties due to recent downgrades (thanks Moody's). Why would they do all this if the plan was to default and restructure??
BTW, Prepa's debt service is very low, around 11% of revenues. And the interest coverage is over 1x. So debt is not really the problem
AGO's CEO says a Prepa default would cost them $12 mill in interest costs a year
AGO's exposure is ~850 mill. Our exposure is ~220 mill, so our interest costs would be 3-4 mill a year
NOT significant
Cate Long has been predicting/wishing for a Puerto Rico bankruptcy for years.
Just take what she says with a grain of salt...
What's the big deal about today's PR legislation?
Maybe I'm missing something, but looks like the legislation provides 2 possible avenues:
1. A consensual agreement between the public corp. and creditors
2. If an agreement can't be reached, a court could help end the stalemate.
Option 1 exists today, of course. The bondholders can always agree to a lower coupon rate or extend the maturity date for some issues. The impact on bond insurers' balance sheets would be limited, minimal losses.
Option 2 is a variation of Option 1, and given that these are revenue bonds, the protections are pretty strong and creditors can claim part of future revenues.
Looks to me that they're walking the stock down on small trades of a few thousand shares.
The link has more info on the proposed PR bill, check it out
http://www.fortaleza.pr.gov/sites/default/files/files/Puerto%20Rico%20v6.pdf
So why are you here, Snowball?
25k block just went thru
Feels like we're ready to break out
Call me stupid, call me crazy
Thanks for posting a good link Denny!
Sorry about the bad link, it was late and my brain was fried
RedBank Power Station to be sold
According to a report that just came out
https://us-mg205.mail.yahoo.com/neo/launch?.partner=sbc&.rand=8p86su1qtjbtu
"sycrf can break out..does it have any value as company?"
Current adjusted book value: $13-14/share
Including additional recoveries on the RMBS lawsuits, ABV could go to $16-20/share
"A ruling against the bond insurers a foregone conclusion"
Only if you haven't been following the case closely. A cram-down would invalidate the Grand Bargain, so it's highly unlikely in this case.
It seems to me that the parties are using the media to score points. Snyder has been positioning himself as the champion of working people trying to minimize pension cuts. Syncora, on the other hand, is now coming across as a staunch defender of creditor rights. Very smart move, which will help down the road when they will, once again do business with Wall Street firms
What was the closing price, 2.15 or 2.20?
It's strange, because I didn't see 20K on the ask or the bid. Only saw a 100K block about a minute before the bell and then another 100K block traded in the very last few seconds of trading
But you bought 20K shares in the last few minutes of trading today?
You bought 200K shares?
200K shares in last minute of trading??
Really, guys?? What was that all about?
Shameless manipulation in my opinion
So will we end the day at 2.14, 2.15 or 2.19?
That's the question of the day. I need a couple of shots of something good to deal with the excitement & suspense
LOL
"If sca is forced to reserve for all of the 180 million Detroit exposure"
--This has been discussed before, but I'll summarize it again. Current Detroit exposure of $189 mill includes the swap payment, the COPs they insure as well as the COPs they purchased in open market (presumably because the market price was below the recovery Syncora expects). Given that the swap payment is probably around ~50 mill, and assuming they only have a small direct investment in COPs of say around 20-30 mill, it follows they insure ~100 mill COPs.
Applying a basic Present Value formula to that 100 mill, I get a number around 40 or 50 mill (conservatively). Given that reserves are $105 mill, it seems to me that SCAI is already fully reserved for a total loss on the COPs plus full payment on the swap.
I think a zero recovery on the COPs is HIGHLY unlikely. The courts would first have to rule the original transaction illegal, then it would have to be upheld on appeal. That would take years of litigation. Of course Syncora would then sue the banks for fraud and recover most of the losses that way.
However, Snyder REALLY needs to wrap up the Detroit bk before November. So a consensual agreement is the most likely outcome IMO
"... that would make the Sca policy holders surplus negative."
--In the past, SGI reinsured many of SCAI's exposures that had losses. That's how Jeffco & Amer Roads ended up on the SGI side. Or SCAI could novate an exposure and transfer it to SGI, same result in the end.
Anyways, the point is that back when SGI's overall surplus was in the $120-160 mill range, there was a danger of going under if more losses came in. But now that the policyholder surplus is around $1 billion, it's the last thing in the world I worry about. In fact, had Syncora transferred the Detroit losses to SGI, it would increase their initial investment in SCAI and bump up overall policyholder surplus by 100 mill.
"Litigation recoveries go to the bad bank (sgi) so that does nothing for sca."
--We own stock in the combined entity. And it's easy to transfer exposures back & forth (as I've explained above), so it doesn't really matter where the cash is parked.
"Even though sgi's ratios appear to be outstanding, it was designed that way since it held most of the real estate exposure."
-- I have absolutely no idea what this means.
"I think this is the reasoning that the rating companies can use plus size difference to refuse to upgrade Syncora unlike National(mbi)."
--Actually, Moody's put Syncora on review for an upgrade after the BAC settlement in the summer of 2012, citing improved liquidity & capitalization. Then, a couple of months later, Moody's withdrew the ratings in response to Syncora's refusal to share info with them. In other words, Syncora wanted to remain unrated for the time being.
"Hopefully Syncora can take advantage of the lack of upgrades by purchasing more debt at a discount that they insure and more commutations."
--Great idea, that's what 2013 was all about. Syncora commuted about $12 bill and remediated many bad exposures including Jeffco and Amer Rods. At this point, with $1 bill in surplus and more recoveries on the way, it's probably much harder to get counterparties to take pennies on the $. Unlike journalists, Wall Street guys know how to read a balance sheet.
To get the Claims Paying Resources (CPR) as of March, I updated the formula on page 6 of the latest Operating Supplement. Remember, you need to back out SCAI's policyholder surplus (which is already included in SGI's surplus). We don't have updated NPVFIP figures, so I used very low numbers to be conservative.
To get the updated Net Par, we fortunately don't have to wait for the Op Supplement. The information is included on pages Q6.9 and Q6.6 of the SGI and SCAI March filings, respectively, in the NPO column.
Hope this helps. It's amazing how SCAI's net par shrank last year. They commuted very aggressively. I wonder why... pretty strange behavior for a company that supposedly plans to be in run-off forever :)
Syncora's Par/CPR=23.8x, DS/CPR=36.7x
Awesome post Denny, thanks so much!!
After reading your post, I ran a few calculations, and here's what I came up with:
First of all, if you look at the latest Operating Supplement as of September (they have not released the December), page 6, the net par outstanding is listed at $13 bill for SGI and $43 for SCAI. As of March 2014, net par outstanding for both was a little less than 50 bill. I'll use 50 bill in the calculations.
To get Syncora's Claims Paying Resources, I updated the numbers on page 6 of the same Operating Supplement and came up with approximately $2.1 billion.
For debt service, I used the numbers on pages Q6.7 and Q6.10, of the latest SCAI and SGI quarterly filings, respectively. The total number came out to 77 billion.
Dividing the resulting numbers gives us Par/CPR=23.8x, and DS/CPR=36.7x
It's important to keep in mind that these numbers do NOT include the additional recoveries of 200-400 million that Syncora will receive in the next few months. That would improve the ratios further to an amazing 20x and 30x. Simply AWESOME!!!!
Even as things stand right now, Syncora is in excellent shape, better capitalized than industry leaders MBIA and AGO.
How do I stickie posts? Glad to be moderating, but I have no idea how to do it :)
ABV: $13-14/share, assuming no additional recoveries
Here are the calcs for the ABV:
964 (SGI policyholder surplus)
- 250 (Preferred class A)
- 135 (Preferred class B)
- 720 (surplus notes)
+ 160 SGI UPR)
+ 247 (SCAI UPR)
+ 103 (SGI Mandatory Contingency Reserves)
+ 105 (SCAI Mandatory Contingency Reserves)
+ 275 (PV of Installment Premiums - estimated)
I'm assuming 59 million shares for the float, even though it's REALLY hard to believe that BAC and JPM have not given back the common shares they owned.
Also, please note that no additional recoveries were included in the calculation. If we assume Syncora will get another $200-400 mill, the ABV goes up to $16-19/share