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There's very little left to do here. Macquarie. Tender for prefs below par. Pay off surplus notes. Probably buy back the Puerto Rican bonds at a discount, strip the wraps, and sell them.
Possibly capital should be raised to use the NOLs, but why are the current board and management the right people to do that?
Rather unethical that the SHL shares held by SGI are being voted for management.
Because of the shareholder-unfriendly staggered board, we have to start voting them out now.
Read the activist letter on Valuewalk from 2016. Still relevant.
Vote withhold on everyone.
Overpaid with poorly aligned incentives, and even if they're sharp (I doubt it) they all have stated skills irrelevant to what Syncora is now.
Denny, your view?
Long Macquarie filing Friday for anyone who wants to read
"If there is a way to break down EBITDA for non-Detroit and Detroit I bet we can get super close to the sale price based on Denny's excellent research once again."
Thought you'd never ask :)
Old but "Proceeds from the tunnel lease are around $4 million to $5 million a year after the city is given its cut of about 20%."
https://www.freep.com/story/money/business/michigan/2014/09/10/why-detroit-windsor-tunnel-plays-key-role-in-big-detroit-bankruptcy-deal/15369749/
Macquarie status meeting was pushed back to next Tuesday--presumably because of the storm coming in New York.
Greenpoint had to be appear on the 12/31 financials, because the revenue was already expected as of 12/29. Just standard accrual accounting. The mistake the SA author made, involving the accounting liability for unearned premium revenue, is a bit more subtle--it's fine to start from GAAP or statutory book value as he seems to have done, but then you have to remember to adjust the surplus notes back to par. (Incidentally the link between GAAP and statutory accounting is rather complicated--e.g. American Roads is carried at different values.)
Nah paying the surplus notes is great--they were acting sort of like equity while payments were suspended, but they aren't equity, and the interest was a transfer of wealth away from common shareholders. With the simplified balance sheet it should be possible to raise convertible preferred at a lower yield to fund an eventual acquisition to use the NOLs (look at what WMIH did).
But actually NOLs are worth a lot less than everyone thinks: there are examples out there of NOL shells with no acquisition in sight trading well below net cash. I'd frankly prefer the company return as much capital as possible in the near future to eliminate the risk management starts burning through cash.
Yes that note was highly misleading. It sounds like they're not including it there as liquidity for purposes of computing the leverage ratios, but it's definitely in the Policyholders' Surplus for 12/31 as well as after Reinsurance.
See Note 25 in the 12/31 SGI STAT, "Changes in Incurred Losses and Loss Adjustment Expenses:", which I am having trouble copy-pasting from the PDF for some reason.
Thanks. Annoyingly he seems to have gotten the AGO accounting wrong. As shown in the Presentation to Surplus Noteholders, Syncora really will pay about $360mm to AGO, coming from $69.252mm in bonds and $294.935mm of cash. The transaction does remove the accounting liability for unearned premium revenue as he says ($238.803mm on the 9/30 GAAP balance sheet), BUT the adjusted book calculation for 9/30 already added most of it back, as "Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed" of $222.5mm. (Not to criticize the transaction too much, it was probably the best option: stopped a lot of the interest burn on the surplus notes, also as we see now released $42mm from the mandatory contingency reserve.) Incidentally Greenpoint did get recognized on the 12/31 stat balance sheet, as salvage rather than cash (it's the reason unpaid losses and loss adjustment expenses became so negative).
True adjusted book after Greenpoint plus AGO should still be around $4.
The important things right now are American Roads and Macquarie, as management said: "After completion of American Roads Sale,
there are no other large strategic projects. We would like the ability to retire surplus notes and/or Twin
Reefs at a discount as part of future distributions." Interesting they're stating my view I think for the first time, which is that the prefs should be worth less than liquidation preference--how much I'm not sure. The surplus noteholders on the other hand I'd have thought would have enough leverage to get taken out at par.
If both sides agree on what appropriate reserves are for the policies that were transferred, and that precisely equalled the $360mm cash and ceded reserves transferred, then there should be no gain in NPV for Assured and no increase in adjusted book. Or another way, Assured's gain is Syncora's loss. But perhaps there's someone here with better understanding of the accounting who can opine.
https://assuredguaranty.com/uploads/PDFs/4Q2017_Earnings_Call_Transcript_Full_FINAL.pdf
Syncora transaction expected to add $2.42 per share to Assured adjusted book (share count 116mm). So that's minus $280mm for Syncora, assuming reserve policies the same on both sides.
No negative spin--if it wasn't obvious, I'm long. But it's imperative to focus on margin of safety.
I suspect some adverse selection in the credits Assured didn't pick up--PR is obvious but not sure about the others. Important to remember SGI's liability is total debt service, not just the net par in the release.
My model is crude but starting from the ABV of $3.98 last quarter we can per the releases add about $3.26 for GreenPoint and then the reinsurance appears to have knocked off $2.60--less if I'm over-reserving. Haven't looked into valuing American Roads or Macquarie yet.
Another thing people seem to have been missing is capitalizing operating expenses (now $30m run rate down from $50?), and interest on the surplus notes until they're redeemed, if the company isn't sold. Someone said something about selling for the NOLs--well, because of Section 382 limitations isn't acquiring an operating business more likely?
So $400m of the surplus notes will definitely be redeemed now. Still worried some equity will be issued in conjunction, though with the reinsurance going through perhaps some of the fixed income portfolio can instead be liquidated to cover.
Some outstanding questions I have:
(1) Terms of the surplus notes--e.g. what are the penalties accruing for the short-term notes since they've already matured (just PIK interest)?
(2) Terms of the prefs--could they be worth less than liquidation preference? Why is par different?
I'm new to both SYCRF and the board. This was inevitable--Assured seems to be the only party in a position to do it, and as a result they got a great deal. (Disclosure: long AGO as well.) But it's disappointing they didn't go for a merger instead. And they still left us with PR and other junk, so won't be able to shut down SGI for a long time.
The good news is this simplifies things. The bad news is this is negative for adjusted book because we paid to have positive NPV business (the 222.5m net unearned premium reserve on financial guaranty contracts) taken off our hands. The 360m paid should be covered by the existing loss reserves, leaving us with 357m reserves, which seems roughly appropriate to cover PR debt service plus the rest. Market overreacted this morning.
Does someone have the offering documents for the surplus notes? How about the Series B preferreds?
It appears redeeming the preferreds is the LAST thing the company should do, because they are not cumulative and can be redeemed at any time. I'm guessing the main covenant is blocking dividends up to SHL? They could be left there as free permanent capital while the company looks for acquisitions etc. Perhaps the main complication is they have two board seats already.
The GreenPoint cash will presumably be used to partially redeem the surplus notes (what are the requirements concerning paying long-term vs. short-term?). Even adding American Roads there won't be close to enough. So I expect the company will offer equity either to noteholders directly or to a third party--which was mentioned as the plan in the 2016 exchange offer. Given that only Esposito has much in the way of existing equity, I still see incentives for this to happen well below intrinsic value.
I have adjusted book higher after GreenPoint, are you subtracting something for PR?
In my experience they will anchor to the public price. Incentives for board and management appear to be to stabilize the business and hit $4.50, not unfortunately to realize full value.
Bad news. Nothing to do with listing. Raising equity. My guess would be a (very dilutive) debt-for-equity swap for the surplus notes or prefs.