SYCRF (OTC) - Syncora Holdings

[Capitalist World]

Nice to see some discussion on Syncora Holdings so I thought I would start it as a new Investment Idea as well.

 

For value hunters watch the earnings release on Dec 20th to see the unveiling of the new Syncora:  New directors, new direction, post refinancing of some Notes, Book value around $6.25 or higher, the last eight years they have been in rehab and runoff after the 2008 blow up (al la "the Big Short)  Similar to the story behind AGO, MBI, AMBC

 

A lot of  great work by Susan Comparato and  CFO Claude LeBlanc as CFO (who just recently moved to CEO rile at Ambac after a masterful job at Syncora).  Syncora will begin a new life with more disclosure, regular financials and conf calls.  Whole slew of possible catalysts for 2017 including:

Possible uplisting;

More transparency;

Regular conference calls;

Continued litigation settlements from Lehman, Greenpoint, Macquaire;

Continued loss mitigation and commutations, (PR and Reliance Rail);

Planned use of NOL's at holding co level and op level;

More disclosure on value of American Roads sub and possible move into infrastructure space,

New business lines and possible divestitures of assets

 

Target price for 2017 is $3.75 or approx. 50% of Book Value  Upside 150% from aver of last 30 days price

 

[wachtwoord]

What do they own? Any short summary what kind of company this is? They're share price history shows they completely collapsed after 2007.

[Capitalist World]

Syncora Holdings Ltd. through its subsidiary, Syncora Guarantee  Inc., a monoline financial guarantee insurance provider, provides credit enhancement for the obligations of debt issuers worldwide.

 

They are similar to, but smaller than, Assured Guaranty, MBIA and Ambac.  They are currently in runoff after the financial crisis on 2008 and have been rehabilitating their business through commutations, lawsuits, negotiations and runoff.  They have Shareholder Equity of $550M against 86.6 million shares outstanding (June 30th 2016). Most of the restructuring has been done with the exception of a few large potential liabilities in Puerto Rico, Reliance Rail and others but they have almost closed the 2019 large funding gap and I expect it to fully closed in 2017 with further commutations and large litigation settlements or court cases.  A rising interest rate environment is beneficial to their $1.4B bond portfolio.

 

see www.syncora.com

 

 

[lemsinge]

Is anyone still following this? It has been on and off my radar for a few months now. Every time I look at it I just throw it in the too hard pile. I would think that it would be up more today after this news:

 

1) Litigation resolution for $335mm on a company with a market cap of $290mm

https://www.bloomberg.com/press-releases/2018-01-02/syncora-guarantee-announces-resolution-of-greenpoint-litigation

 

2) Merger of runoff account into SGI

https://www.bloomberg.com/press-releases/2018-01-02/syncora-announces-the-merger-of-scai-with-and-into-sgi

 

Is it possible they will begin writing new muni insurance sooner rather than later?

[mrholty]

I have owned them for a while.  They cannot write new business until NY State regulators will allow them to.  My assumption is that they never will.

 

If anyone is interested in them I would recommend that they go and listen to their last conference call.  They were very open and forthcoming of what the next 3-6-9 months would hold.  The Greenpoint litigation was discussed but a timeframe was not given.

 

1.  Reliance Rail (Australia) has been completed.

2.  The consolidation of entities should allow them to make payments to preferreds. 

3.  Expectation that they will sell their American Roads division (on the books for $125M IIRC).  Have seen estimates that it will go for $150-$250M. 

4.  Use of NOLs.  Several Billion of NOLs which I cannot see them being able to used.  I expect them to sell out in 18-24 months if not for the NOL's alone.

[Foreign Tuffett]

I have owned them for a while.  They cannot write new business until NY State regulators will allow them to.  My assumption is that they never will.

 

If anyone is interested in them I would recommend that they go and listen to their last conference call.  They were very open and forthcoming of what the next 3-6-9 months would hold.  The Greenpoint litigation was discussed but a timeframe was not given.

 

1.  Reliance Rail (Australia) has been completed.

2.  The consolidation of entities should allow them to make payments to preferreds. 

3.  Expectation that they will sell their American Roads division (on the books for $125M IIRC).  Have seen estimates that it will go for $150-$250M. 

4.  Use of NOLs.  Several Billion of NOLs which I cannot see them being able to used.  I expect them to sell out in 18-24 months if not for the NOL's alone.

 

Care to share how you are valuing this?

 

Adjusted book value on 9/30 was $3.98. Holding everything else constant, the settlement should take it north of $6.00 ($6.24 is the exact # I'm getting). Obviously this thing shouldn't trade near book value as it's effectively in a slow liquidation, but it looks cheap trading near 50% of adjusted book.

[mrholty]

I have owned them for a while.  They cannot write new business until NY State regulators will allow them to.  My assumption is that they never will.

 

If anyone is interested in them I would recommend that they go and listen to their last conference call.  They were very open and forthcoming of what the next 3-6-9 months would hold.  The Greenpoint litigation was discussed but a timeframe was not given.

 

1.  Reliance Rail (Australia) has been completed.

2.  The consolidation of entities should allow them to make payments to preferreds. 

3.  Expectation that they will sell their American Roads division (on the books for $125M IIRC).  Have seen estimates that it will go for $150-$250M. 

4.  Use of NOLs.  Several Billion of NOLs which I cannot see them being able to used.  I expect them to sell out in 18-24 months if not for the NOL's alone.

 

Care to share how you are valuing this?

 

Adjusted book value on 9/30 was $3.98. Holding everything else constant, the settlement should take it north of $6.00 ($6.24 is the exact # I'm getting). Obviously this thing shouldn't trade near book value as it's effectively in a slow liquidation, but it looks cheap trading near 50% of adjusted book.

 

Edited:

I am fine with it selling at 50% of book as that is what MBIA and Ambac were trading at last I looked (summer).  I think they actually should be trading higher as they do not have a bad book within like those two which is the point of the haircut but that is a different argument for a different time.  I expect the business to be sold for .8-1.0 book within 2 years.  To do so they need to clean up their books.

 

Greenpoint - I had estimated it at $285M (100% of amount owed).  This was considerably more.  Yeah! 

 

American Roads - I estimate they will $350M (I've seen estimates of $400-$500M) - Last number I have is the business did $27M in revenue in a year.  On the books at $145M - Gain of $205M to book value ($2.40/share)

Maquarie lawsuit (related to American Roads) - Value $0-$200M - I used to think this would be a few years out as I assume they would want to have this done before selling American Roads.  They are fairly far down the process to sell American Roads. (They originally took a $250M loss on this)

 

Detroit waterfront land- I used to be more bullish - I'll say its worth $40M ($0.50/share)

 

Reliance Rail refinance complete + merger of SGAI will lead to them removing a liquidity mismatch in their language.  They have spoken about setting up Reinsurance which I think is a positive for if/when they sell their book.

 

Add in that they have steadily reduced their exposure to Puerto Rico ($110M not reserved last Q @ 100% loss)

 

Add it all up and I see lots of upside $7.50-$10.00 in book value and an eventual sale in the next 2 years.

[lathinker]

I recently initiated a position.

 

They reported adjusted book value of 7 USD/share as of 31/12/2017. Also, they agreed a reinsurance transaction with AGO, bringing their remaining exposure to just about 1 bn USD (which  includes Puerto Rico). For the risk transfer, they will pay 336 mm USD. While this transaction will reduce their ABV per share (I would expect to 4-5 USD), the portfolio is now largely derisked and for me, there should be more upside than downside left. Also, they can continue winding up  the company. Next step is a large payment of 400 mm USD to the holders of surplus notes. They also noted that they are looking to realese some value to equityholders (I would expect to start with the preferreds).

 

 

 

[doughishere]

I recently initiated a position.

 

They reported adjusted book value of 7 USD/share as of 31/12/2017. Also, they agreed a reinsurance transaction with AGO, bringing their remaining exposure to just about 1 bn USD (which  includes Puerto Rico). For the risk transfer, they will pay 336 mm USD. While this transaction will reduce their ABV per share (I would expect to 4-5 USD), the portfolio is now largely derisked and for me, there should be more upside than downside left. Also, they can continue winding up  the company. Next step is a large payment of 400 mm USD to the holders of surplus notes. They also noted that they are looking to realese some value to equityholders (I would expect to start with the preferreds).

 

one of my largest positions...has been for some time. welcome to the klub.

[lathinker]

Syncora Holdings today announced the planned sale of their main asset, the Guarantee Insurance business (SGI), for 392.5 mm USD in cash.

 

http://scafg.gcs-web.com/news-releases/news-release-details/syncora-holdings-ltd-announces-agreement-sell-syncora-guarantee

 

The announcement follows the expolaration of strategic alternatives as announced in May. The price came as a clear disappointment to the market and the stock is down about 13% today to about 4.60$ as of this writing. If the deal goes through, Syncora will hold:

 

392.5mm USD Cash from SGI

32mm USD other Cash

certain assets related to Pike Point LLC (100% owned; book value of 8.5mm USD per Dec 2018)

80% of Swap Financial Group (100% book value of 13mm USD; 10.5mm USD for 80% per Dec 2018)

 

They also have pref shares outstanding with a current liquidity prefence of 37mm USD. In total, that gives an expected distribution, assuming book value for Pike Point and Swap Financial of 4.66 USD/share

 

Further items to adjust from here

 

+ Syncora holds 300mm USD in NOL

+ they hold a property in Detroit through Pike Point

- Cost / Cash Burn to run and wind down the company

 

The agreement states explicitly that Syncora may walk away  if they find a better deal by 13 September and pay 15.7mm USD. It is nothing I would expect given they just ran a bidding process but given the price is on the low side of expectations (and adjusted book value is 7.86 USD/share), it is not zero either.

 

Syncora has yet to announce the precise further procedure in terms of distribution. Still holding my position here.

[Foreign Tuffett]

Syncora Holdings today announced the planned sale of their main asset, the Guarantee Insurance business (SGI), for 392.5 mm USD in cash.

 

http://scafg.gcs-web.com/news-releases/news-release-details/syncora-holdings-ltd-announces-agreement-sell-syncora-guarantee

 

The announcement follows the expolaration of strategic alternatives as announced in May. The price came as a clear disappointment to the market and the stock is down about 13% today to about 4.60$ as of this writing. If the deal goes through, Syncora will hold:

 

392.5mm USD Cash from SGI

32mm USD other Cash

certain assets related to Pike Point LLC (100% owned; book value of 8.5mm USD per Dec 2018)

80% of Swap Financial Group (100% book value of 13mm USD; 10.5mm USD for 80% per Dec 2018)

 

They also have pref shares outstanding with a current liquidity prefence of 37mm USD. In total, that gives an expected distribution, assuming book value for Pike Point and Swap Financial of 4.66 USD/share

 

Further items to adjust from here

 

+ Syncora holds 300mm USD in NOL

+ they hold a property in Detroit through Pike Point

- Cost / Cash Burn to run and wind down the company

 

The agreement states explicitly that Syncora may walk away  if they find a better deal by 13 September and pay 15.7mm USD. It is nothing I would expect given they just ran a bidding process but given the price is on the low side of expectations (and adjusted book value is 7.86 USD/share), it is not zero either.

 

Syncora has yet to announce the precise further procedure in terms of distribution. Still holding my position here.

 

Why hold if the stock is at $4.60 and you expect a $4.66 distribution? That's not much of a spread. What kind of value are you placing on the Detroit property and NOLs?

 

[Capitalist World]

I began the thread on Syncora and still have a large (but trimmed) multi-bagger position.  The recent announcement of a sale of SGI subsidiary was at an extremely disappointingly low price.  I know several large shareholders that are not happy.      Seems management checked out after their incentives  were triggered at $4.50.  The value of most of  NOLs being added to the deal should have added  $100M or over $1.00/share over the BV (to the right bidder.. BRK??).  The deadline to find any possible rival bidders is Sept 13th and I do believe that at least one bidder will come forward at the $5.25 to $5.50 range.  Zero downside from here and extra residual value in SHI is approx $0.50-$0.75 after the receipt of Golden Tree proceeds if no other bidder comes forward.  Biggest risk and biggest opportunity

1) What is  new direction management pivots to

2) How much will they distribute to shareholders

3) what is the tax treatment of any distribution

4) what is the residual value inside SHI

[lathinker]

http://scafg.gcs-web.com/news-releases/news-release-details/syncora-holdings-ltd-announces-increased-cash-purchase-price

 

As suggested by Capitalist World, the price increase is here. The buyer is still Star Insurance / Golden Tree, yet they lifted the price due to a competitive bid on which they unfortunately give no details.

 

-> Cash price increased by 36.5mm USD to 429 mm USD.

-> Buyer assumes obligations unter Pass Through Twin Reef Preferred Securities (37mm  USD per 30/06 if I get this correctly)

-> Range of other assets estimated 45-60mm USD

 

Using 45mm USD, I get to a total value of 5.45 USD / share. Also, they are planning for a cash distribution shortly after receiptof the proceeds.

 

Interestingly, the sales price increase (pre tax) from today's announcement is about 0.85 USD per share, while the stock is only up 0.35 USD. Might be that quite some market participants had expected the move.

 

Chapeau to Capitalist World for making another good call on this one.

[DW1234]

Capitalist World, what is your take on tax treatment of the distribution? I assume they would have to pay capital gains tax, which they can (partly) offset with their NOLs.

[DeepValuePlay]

Any thoughts you might have on Ambac given the similarity in the businesses? I am thinking of initiating a position there...

 

[Capitalist World]

I have sold my entire position held since last 2013 and it was between a 5X and 15X for me as I held shares in different accounts (including TFSA temporarily until it was deemed to be an ineligible security ) Tax treatment is still unknown but it is suggested that it will be treated as a "liquidation" and as a Cdn taxpayer I don't know (or care to know) what that would mean to me.  I have seen other foreign and US based distributions being treated as ordinary income and fully taxable to me so I preferred to have the guarantee of cap gains tax treatment by selling prior to the distribution.

 

Ambac (run by ex Syncora CFO Claude LeBlanc) is also a similar play to what Syncora went through and Claude is well equipped to get similar results.  No position as I have ramped up my GSE jr Preferreds position to am embarrassing large 30% + portfolio position.  (FNMAS FNMAT FNMAI FNMAM FMCKI FMCCL).  I own no common.

[lathinker]

Is anyone still following Syncora?

I restarted a position recently as a liquidation play. Good outline of the thesis is here: https://valueinvestorsclub.com/idea/SYNCORA_HOLDINGS/8071667419

 

Given that they are trading at around 28mm USD with 22mm USD in cash, downside appears limited. There are a few loose ends which are difficult for me to judge, including the value of the Detroit Real Estate and, in particular the discount certificate to buy real estate from the city. Not sure  how easily this can be cashed in.

Also, there is some uncertainty around the value for Swap Financial Group and the pending litigation. From what I read and from initial udgements, I am mildly optimistic on apositive outcome of the litigation. They will however have to get it off the table in order to wind the whole company up - so clarity on the litigation side seems like a major catalyst to watch.

 

Given they handled the liquidation fairly competently so far, I trust they will also take the final steps in the next year or so.

To me there is a scenario for a two-bagger while downside is limited and while the situation is fairly uncorrelated to the overall market.

[writser]

Good to see you here! Couple of thoughts:

 

1. The company switched to liquidation accounting last year but the balance sheet is still 'leaking' every quarter. Even though Swap is valued at $1.5m in the MRQ compared to $0.5m in the March, 2020 quarterly, net assets in liquidation have dropped significantly during the year. A bit worrisome.

 

2.There are two SYCRF write-ups on VIC and I thought they were both quite bad optimistic. In particular, I see neither write-up mentioning that the real estate assets have some strings attached to them. From the quarterlies:

 

These real property-related assets include certain requirements, including that (1)

construction on the real property interest owned by the Company begin on such property within 15 months and be

completed within 39 months of December 10, 2019, the date when the Company took ownership, (2) the real property

option be exercised before December 10, 2021 and that construction begin on such property within 15 months and be

completed within 39 months of exercising the option

 

Both write-ups use comparable transactions to value the real estate, but especially the plot currently owned surely deserves a haircut given that we've heard nothing yet and that they have to start building something within a month!? The option might be more valuable but that also has some strings attached.

 

I have been following this name for a while and have a position but I don't share the VIC optimism. Especially the December, 24 write-up by a new member who projects a 100%+ IRR and $0.60 per share in value. I hope he is right, but consider me skeptical .. There is probably some optionality in Swap and the Real estate. But the Swap lawsuit appeal could take a while (more overhead costs .. ?) and the real estate has some strings attached to it. I'm tempted to put more weight in the ~$0.30 / share given in the most recent liquidation basis statements than in the comparable plot sales being thrown around on VIC. If the real estate was that easy to monetize surely it wouldn’t be valued at zero? Or, to flip it around, if I have to pay for the exotic real estate stuff valued at zero by the company  I want some solid evidence that it is worth something.

 

Still, given the large cash balance the downside does seem limited, so in total the risk / reward might be ok. As I said, I own a bit.

[lathinker]

Hey writser, I appeciate your views on Syncora. As usual,your points are very reasonable.

 

I am wondering what is going to happen if they do not manage to start construction on the land plot with the next - well - 6 days. Statements mention the risk of reposseission by the city but this may not happen automatically. I agree that you cannot comparable transactions are a tricky measure here.

 

The option and the certificate are somewhat plays on the recovery of the Detroit waterfront area. No view on what is happening there. I saw aome articles on efforts to revive this, but hard to say from my armchair in Germany how this is going. So, yeah, option value

 

The lawsuit is a risk, I am mildly optmistic for a favourable ruling based on the first ruling. Also, if that is really the last missing piece to finanlizing the liquidation, it might as well be settled.

 

Also, it is noteworthy that the Crown investment will stop paying preferred dividends in May 2021 which might also be a reason to sell this asset.

 

Their September statements assume for the liquidation to be finalized by June 2021. Mut well be just an assumption.

 

So, in total, yeah, risk/return is probably okay though not stellar. Gonna be interesting to watch their next statements.