Friday, March 7, 2014

Sawadee Kraup JPM Settlement

A few updates on thoughts on Syncora on areas that I've been emailed on.

Banks including JPM persistently acted like they were (or are) in the land of smiles on their exposure to monoline put backs, right up to settling in the realm of 100% of liabilities in the case of JPM/Syncora.  In fact as far as I can tell, JPM has now settled for over 100% of Syncora's gross economic (net of remediation) losses in the relevant deals (JPMF 2007HE1, SACO I Trust 2007-1, and BSSP 2007-r5). Syncora likely had extra leverage given that losses attributable to uninsured CF notes are likely only going to have a shot of recovery through Syncora litigation. All in, as they say in the land of smiles, kapun kraup Mr. Diamond.

I'm not privy to how the 2010 remediation and subsequent deals contracted recovery claims. Without that knowledge I can't say it is impossible that uninsured CF holders won't make a valid claim on part of this settlement. I'm not expecting that though. 

Elephants aren't only disappearing in Thailand. I am expecting Syncora will ultimately get another bump in surplus of 250M-400M above current (very low, maybe 25-50M) recovery estimates on their Lehman Greenpoint claim (JPMF 2006 HE1 ax). But that is the only big boy source of upside to Syncora's insured book, which I think has the more problem credits relative to capital than Assured, MBIA, Ambac, Radian Asset, or American Overseas. 

In the past, I have described ABV without new biz as analogous to maturity value of a zero coupon, if installment premiums are not included and roughly offset op ex. So that ABV is basically net assets - net ultimate losses which you can get too via adjusting a securities-only BS or working off the statutory statements. This is just one way to think about it and it is not a conservative one because (among other things) the yield on liabilities exceeds the yield on assets.  Such an ABV number per share for Syncora is very likely closer to (including under) ten than 20 with a higher risk of being 0 than say Ambac's risk of being worth less than 16.67 in 2023. But there is definitely a wider distribution of possible outcomes both ways for Syncora. Combine that with low liquidity and you've got one spicy dish for sure. 

To say the same thing in a new way Syncora could end happier, but Ambac is the better bet for a happy ending.

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