Alright, so has not been a picnic for some time... why has Syncora retraced back to pre-settlement days.
Common BV has steadily grown from extreme negatives to $2.8 to most recent Dec 2014 GAAP annuals $1.02 (RichRichSTL -- it is in the 2014 annual filing and April MGMT presentation)
1) Reserve for PREPA ($56-62m per docs) detracted from Surplus ( tho could get released if PREPA turns out okay/better) 2) An unknown tho likely Redbank and maybe Spanish roads (never confirmed, don't think that was it, merely Redbank) hit on top of that (perhaps some relief if assets sold soon) 3) Continued fears of some sort of Puerto Rico apocalypse (unjustified in my view - bonds already trade as such anyways/baked in to stock price/books) 4) Yes, Lack of buying interest as on OTC (Syncora doesn't relief rally like other bond insurers do in moments of such) + CONTINUED LEGG MASON Selling == TECHNICALs 5) Opacity of Management+Lack of Communication leaves much to desire in trying interpret their filings (Decoder Ring needed) == SENTIMENT 6) Capital Structure has not quite filled out, came close, but since steady state with PR headlines 7) Regulators/MTA/PayingSurplusNotes/NewBoardofDirectors exit path far from clear at this stage
L/T Surplus Notes 81-82 vs high 80s/low90s at peak S/T Surplus Notes 75-76 vs low 80s Pref B (twin reefs) unknown vs mid 50s Pref A 42.5-43.5 vs 48s at peak
All Cap Structure still universally better after settlements ie Pref As were low 10s
Regardless, will lay out where we stand... try to flesh out what else there is to be known
HERE ARE CHART/TRENDS
VS CPR/NPO RATIOS of PEERS (Chart is older)
CLEARLY, Syncora has de-risked the book and will be very much more derisked NPO may be down to $33B by EOY; while growing the Surplus (Lehman or Greenpoint settle by EOY?)!
Releasing the capital (40-71m) from UK a bonus to for liquidity at SGI+SCAI+ maybe holdco down the road
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Really Excellent digging/analysis from InvestorPM ( i didn't get around to find this)
Take a look at the Detroit swap settlement. It has no real impact on the Policyholder surplus of the insurance companies but it could have a significant impact on the Shareholders Equity of the Holding Company.
According to the Syncora Capital Assurance Q2 Report “the Company issued policies insuring interest rate swaps with respect to the City of Detroit that has an estimated mark to market value of $98 million at June 30, 2015. If these swaps are deemed terminated by the swap counterparties, as the Company contends, the Company’s policy exposure is capped at $27 million at June 30, 2015 ($13.5 million at August 14, 2015). “
So if I am reading this correctly it looks like they have settled on half of the interest rate swaps and that is why the $27 million fell to $13.5 million. If that is true then the mark to market value of the swaps should fall from $98 million to $47.5 million as of Aug 14, 2015.
According to the Syncora Capital Assurance Q2 Report… With respect to the settlement related to the City of Detroit interest rate swaps, this transaction is considered a Type I Subsequent Event that has been recognized in the Company’s reserve estimates at June 30, 2015. As the Company’s previously established reserves were in line with the related settlement amount, this transaction did not have a material effect on the Company’s policyholders’ surplus
$27 million at June 30, 2015($13.5 million at August 14, 2015).
Definitely related to that settlement shift subsequent... I believe Syncora settled with say UBS, but still needs to settle with BoA/Merrill or vice versa and thus is the reason why EXERCISE price and consideration was left off... to not show/disclose how much they exactly settled for... tho I think quite clear the range given where the stock trades today, even 1-2 for 9mth option for 2.5m shares, clear of the cap... lawyers be lawyers, i guess
Reserve was fine, and settlement suggests favorable of the final other party.
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Some further points
+The hope of 5-10baggers always ropes a good many of us investors in a wee bit too early, all i can say it requires more patience than we (or I) would like at times, esp when math speaks volumes, but mr market does not
+HIGHER RATES can help Syncora's large investment assets generate more substantial income... than it currently is getting off the low rate environment today
+Puerto Rico hangs over, but appears to very manageable, there is that one payment in 2017 for PR GO, other the payment schedule seems quite easy to swallow if you look at the new disclosure at the end of the Opp Supplement.
+Many hidden assets that management seems to have very little interest in highlighting, which continues to boggle the shareholder mind/interest
NOLs ($3B) LEHMAN/GREENPOINT/MACQUARIE ($150-400m settlements) AMERICAN ROADS+RealEstate ($100m-500m+) marked on books as if $100m VC FUND($40m but who knows maybe unicorn, doubtful-but optionality i suppose)
+Consistent Shares outstanding shrinkage 65m 59.3m 56.3m now potentially 53.8m? with this last Detroit Swap Settlement for 2.5m shares option
As always,... risk
-RISKS/CREDITS to Watch for:
Flags List includes Watch, Yellow, Red, Loss lists Trending:
NOW =>
TRENDING >>>
WHAT RISKS DO WE LOOK FOR / WHAT IS IN THESE LISTS :
-FUTURE: Overall economy,+ risk to portfolio
UK (Various NHS Trust (NewCastle), education trusts (Lanarkshire), seem fine at present) Australia (All credits known its Reliance Rail, DBCT) Illinois (9m chicago GOs, rest mostly Illinois state) Unknown SSR now 259 from 266 q/q
Alabama St U (state supported but weak black historic college)
Very few PetroStates/CommodityCountries, so that seems good Chile (unknown total 575m) Canada 236 Texas 1.2B (Texas has 12B rainy day fund, and very strong, perhaps maybe a small ed district i guess)
no Alaska/Dakotas/Louisiana (most weak to O&G), etc.
EXISTING
-Old BIG list with my new poor scribbles (Reliance Rail, Sup Health NewCastle, San Jose, Navy Northeast Housing (down 100m), etc.) :
The Two Primary ones on the radar
-SUPPORT HEALTHCARE (NEWCASTLE)
(favorable case ruling appears to have settled matter, tho the PFI/NHS/PPP Hospital trust sector some downgrades see latest with MBIA a wk back // still seems fine)
Rating Action: Moody's upgrades Reliance Rail's senior secured rating to Ba3 Global Credit Research - 26 Mar 2015 Sydney, March 26, 2015 -- Moody's Investors Service has today upgraded the senior secured rating of Reliance Rail Finance Pty Ltd (RRF) to Ba3 from B1. Moody's has also upgraded RRF's subordinated debt rating to B2 from B3.
The ratings outlook is positive.
RRF is the funding vehicle for Reliance Rail, the consortium appointed to manufacture and maintain 78 new trains for Sydney Trains, the State-owned metropolitan train services provider for Sydney. Sydney Trains' obligations under the Waratah project are backed by the State of New South Wales (Aaa stable).
RATINGS RATIONALE
"The ratings upgrade reflects Reliance Rail's solid operating track record over the past 12 months, which resulted in gradual improvement in reliability as well as lower than expected revenue abatements," says Spencer Ng, a Moody's Vice President / Senior Analyst.
The fleet's solid reliability performance, as measured by the average distance between incidents of around 35,000 km, compares well to the minimum requirement of 10,000km under the contract.
"We believe the fleet's performance demonstrates Reliance Rail and its contractor's ability to manage teething issues in a timely manner as they emerged during the early stages of operations, and is also an indication of their capacity to handle future issues that might arise over time," says Spencer Ng,
"That said, we note that the technical nature of Reliance Rail's train fleet and its maintenance tasks mean that the project faces greater exposure to unexpected teething and defect issues. Moreover, these issues can take longer to emerge and rectify relative to those experienced in the typical PPP project, which is required to provide simpler facility maintenance services in buildings," adds Ng.
The higher exposure to teething issues is evident in the persistent -- albeit modest and within our ratings expectation -- level of revenue abatement attributed to trains being late or unavailable. We expect revenue deductions to continue going forward, but for average annual abatements to be maintained at current levels or improve marginally.
The positive ratings outlook reflects the possibility of further upgrade, if the project can maintain its current operating performance over the next 12-18 months.
The project's ratings also incorporate its refinancing exposure in 2017/18, when close to AUD1.15 billion of bullet bank facilities and bonds expire. In particular, we note that 1) the conditionality in the vital State capital injection and 2) the material size of the refinancing task would mean that some uncertainty would remain in the execution of the project's refinancing plan until its completion.
We note that securing the proceeds from the State's capital injection is crucial to Reliance Rail's ability to repay a portion of the expiring debt in order to offset the expected rise in credit margins at the refinance.
Reliance Rail's ratings could be considered for an upgrade if Reliance Rail maintains its solid operating track record over the next 12-18 months and if there is no material deterioration in the capital market conditions that is likely to affect the project's ability to refinance leading up to 2018.
On the other hand, the ratings could experience downward pressure if: 1) the operating performance of the fleet deteriorates substantially from current level, or 2) there is a significant deterioration in capital market conditions.
Reliance Rail Finance Pty Ltd is the funding vehicle for the Reliance Rail Group, which in turn was the successful consortium appointed by Sydney Trains in 2006 to deliver the NSW Rolling Stock public private partnership project. Reliance Rail completed its manufacture of 78, eight-car Waratah trains for the Sydney suburban rail network in May 2014 and an associated maintenance facility in 2010. The consortium will maintain the trains and the maintenance facility from completion until early 2044.
The principal methodology used in this rating was Operational Privately Financed Public Infrastructure (PFI/PPP/P3) Projects published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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