- Second quarter 2008 net loss to common shareholders of $492.9 million, or $7.67 per common share, versus net income of $25.9 million, or $0.40 per common share in the second quarter of 2007; Six month 2008 net loss to common shareholders of $589.7 million, or $9.18 per common share, versus net income of $63.2 million, or $0.98 per common share in the first six months of 2007;

- On a proforma basis, after giving effect to the August 5, 2008 transactions with XL Capital Ltd, Merrill Lynch & Co., Inc. and other related transactions, total shareholders' equity of $1.1 billion and common shareholders' equity of $0.9 billion, or $13.75 per common share, as of June 30, 2008.

HAMILTON, Bermuda, August 11 /PRNewswire-FirstCall/ -- Syncora Holdings Ltd. (formerly known as Security Capital Assurance Ltd) (NYSE: SCA) ('Syncora' or the 'Company') today announced results for the three- and six-month periods ended June 30, 2008. The net loss in the second quarter of 2008 was $492.9 million, or $7.67 per common share, versus net income of $25.9 million, or $0.40 per common share, in the second quarter of 2007. The net loss for the quarter was primarily due to net losses and loss adjustment expenses of $455.6 million and a charge of $125.7 million related to the net change in fair value of derivatives. The net loss for the first six months of 2008 was $589.7 million, or $9.18 per common share, versus net income of $63.2 million, or $0.98 per common share, for the first six months of 2007. As of June 30, 2008, the Company reported a total shareholders' deficit of $182.1 million and a common shareholders' deficit of $428.7 million, or $6.67 per common share.

After the end of the second quarter of 2008, Syncora entered into important agreements for transactions with XL Capital Ltd ('XL Capital') and Merrill Lynch & Co., Inc. ('Merrill Lynch') that closed on August 5, 2008. These transactions will be reflected in the third quarter financial statements. The Merrill Lynch transaction involved the payment of $500 million in cash consideration by Syncora to Merrill Lynch, in exchange for Merrill Lynch's agreement to terminate eight credit default swap contracts with an insured gross par outstanding of $3.74 billion, as of June 30, 2008. The XL Capital transaction consisted of the commutation, elimination and termination of certain reinsurance and guarantees among certain XL Capital affiliates and Syncora and its subsidiaries in exchange for consideration in the amount of approximately $1.775 billion in cash plus eight million XL Capital ordinary shares, as well as the transfer of XL Capital's 46% ownership in Syncora to a trust.

On a pro-forma basis, after giving effect to these and other related transactions, as of June 30, 2008 the Company's common shareholders' equity calculated in accordance with U.S. generally accepted accounting principles ('GAAP') would have been approximately $0.9 billion and total shareholders' equity would have been approximately $1.1 billion. In addition, Syncora Guarantee Inc.'s ('Syncora Guarantee', formerly known as XL Capital Assurance Inc.) June 30, 2008 policyholders' surplus would have been $1.0 billion compared to a deficit of $881.1 million actually reported as of that date. The common shareholders' equity and Syncora Guarantee's policyholders' surplus described above reflect certain assumptions by the Company concerning the transactions contemplated by the Agreements and related transactions. There can be no assurance that the Company's assumptions will not differ materially from the ultimate treatment or impact of the aforementioned transactions.

'Our results in the second quarter stemmed mainly from significant deterioration in U.S. residential mortgage performance that adversely affected the asset-backed collateralized debt obligations and residential mortgage backed securities we insured,' said Paul S. Giordano, President and Chief Executive Officer of Syncora Holdings. 'Last week, we achieved an important milestone in our restructuring process by completing the previously announced transactions with XL Capital and Merrill Lynch, which strengthened our capital position and removed from our insured portfolio some of the exposures of greatest concern to us. To reduce the risk of further adverse loss development, we are continuing to work with our remaining credit default swap counterparties in an effort to commute or restructure the exposures we have to them. We also remain committed to exploring ways to place our public finance business on a more stable footing going forward.'

For the second quarter of 2008, the Company reported an operating loss of $1.288 billion, or $20.05 per common share, compared to operating income of $46.4 million, or $0.72 per common share for the second quarter of 2007. For the first six months of 2008, the Company reported an operating loss of $1.291 billion, or $20.10 per common share, compared to operating income of $90.5 million, or $1.40 per common share for the first six months of 2007.

Operating income (loss) is a non-GAAP measure that is calculated by taking net income excluding the after tax effect of: (i) net realized gains (losses) on investments, (ii) unrealized gains (losses) on derivatives net of credit impairment adjustments included in unrealized gains (losses) on derivatives and (iii) certain other items. As many research analysts and investors do not limit their analysis of our earnings to a strictly GAAP basis, Syncora provides additional non-GAAP information such as operating income (loss). The reconciliation of non-GAAP measures can be found in Appendix A at the end of this release.

The weighted average number of shares used in the 'per share' calculations was 64,259,009 for the second quarter of 2008. This compares to weighted average shares of 64,506,612 for the second quarter of 2007.

Net Change in Fair Value of Derivatives and Credit Impairment Charges Associated with Derivative Exposure

The net loss for the quarter was partially due to a charge of $125.7 million, or $1.96 per common share, related to the net change in fair value of derivatives associated with financial guarantee obligations executed in credit derivative form, as required by GAAP. Included in the net change in fair value of derivatives for the second quarter is $944.9 million of additional credit impairment associated with adverse loss development in the Company's collateralized debt obligations of asset backed securities ('CDO of ABS') portfolio. Additionally, the Statement of Financial Accounting Standards No. 157 'Fair Value Measurements' requires the Company to adjust the estimated fair values of its derivative liabilities to incorporate the risk of the Company's own non-performance. Syncora applied a market-derived discount rate, which includes an adjustment for the Company's credit spreads, in estimating the fair value of its credit derivative liability. The effect of the Company's credit spreads on fair value can vary widely from period to period dependent largely on the perception of Syncora and/or its operating company, Syncora Guarantee, as counterparty.

For the first six months of 2008, the net change in fair value of derivatives on financial guarantee obligations executed in credit derivative form was a charge of $222.0 million, which includes net credit impairment of $965.4 million during the first six months of 2008 associated with the CDO of ABS portfolio.

Net Cash Used in or Provided by Operating Activities

For the three months ended June 30, 2008, net cash used in operating activities was $63.0 million compared to $46.5 million provided by operating activities in the comparable three-month period in 2007. For the first six months of 2008, net cash used in operating activities was $107.7 million compared to $105.3 million provided by operating activities in the comparable six-month period in 2007. Net cash used in operating activities during the second quarter and for the first six months of 2008 was primarily due to the Company having ceased writing substantially all new business, combined with higher expenses and significant claims payments made during the second quarter and first six months of 2008. Gross claims of $193.7 million were paid during the first half of the year related to home equity line of credit ('HELOC') and closed-end second lien ('CES') residential mortgage backed securities ('RMBS') transactions. There were no claims paid in the first six months of 2007.

Net cash provided by financing activities was $195.8 million for the first six months of 2008 primarily from the receipt of proceeds of approximately $200 million from the issuance the Series B non-cumulative perpetual preferred shares of Syncora Guarantee Re Ltd. ('Syncora Re') in connection with the exercise of the Twins Reefs Asset Trust put option in the first quarter of 2008.

Dividend Update

As part of an agreement reached with the New York State Insurance Department, the Company has agreed to an 18 month moratorium on the payment of all dividends to the Company's shareholders.

August 5, 2008 Agreements

Agreement with XL Capital

As previously announced, on August 5, 2008 a number of reinsurance, guarantees and other arrangements among Syncora and its subsidiaries and XL Capital and its subsidiaries were terminated, eliminated or commuted in return for the payment by XL Capital and certain of its affiliates of $1.775 billion in cash plus eight million of XL Capital's Class A Ordinary Shares to Syncora Guarantee and Syncora Re and the transfer of XL Capital's 46% ownership of Syncora into a trust. This transaction will be accounted for in the Company's third quarter 2008 financials.

Agreement with Merrill Lynch

As previously announced, pursuant to the Merrill Agreement, on August 5, 2008, Syncora, Syncora Guarantee, Merrill Lynch, Merrill Lynch International ('MLI') and eight trusts affiliated with Syncora, the obligations of which are guaranteed by policies issued by Syncora Guarantee, terminated eight credit default swaps (the 'Swaps') and the related financial guarantee insurance policies issued by Syncora Guarantee, with an insured gross par outstanding as of June 30, 2008 of $3.74 billion, in exchange for a payment by Syncora Guarantee to Merrill Lynch of an aggregate amount of $500 million. As part of the closing of the transactions associated with the Merrill Agreement, the parties provided mutual releases of claims with respect to the Swaps and the related policies. In addition, Syncora Guarantee and MLI agreed to dismiss the litigation related to seven of the Swaps. This transaction will be accounted for in the Company's third quarter 2008 financials.

Discussion of Syncora's Second Quarter 2008 Financial and Operating Results

Set forth below is a discussion of Syncora's operating results for the three- and six-month periods ended June 30, 2008, compared to the same periods in 2007. It is important to note that during the first six months of 2008 the Company ceased writing substantially all new business, making year over year comparisons less meaningful.

Net Premiums Earned

Net premiums earned, which include accelerated premiums from refundings, increased 169% in the second quarter of 2008 to $121.0 million compared to $45.0 million in the second quarter of 2007. The reclassification of certain specific revenue, expense and balance sheet lines, including net premiums earned, was associated with the new financial statement presentation of the Company's CDS contracts. These adjustments reduced net premiums earned by $16.4 million in the second quarter of 2008 and $9.2 million in the second quarter of 2007, when compared against the prior method for presentation of net premiums earned. Net premiums earned associated with the Company's CDS contracts are now presented in the 'realized gains and losses and other settlements' line of the statements of operations. For the first six months of 2008 net premiums earned increased 114% to $179.4 million from $83.9 million in the first six months of 2007. The increase in total net premiums earned was primarily due to the significant increase in refunding premiums during the second quarter and first six months of 2008.

Net premiums earned excluding refundings ('core net premiums,' a non-GAAP measure) increased to $59.5 million in the second quarter of 2008 up 23% from $48.5 million in the second quarter of 2007. For the first six months of 2008 core net premiums were $115.8 million, a 24% increase compared to the first six months of 2007. A reconciliation of net premiums earned to core net premiums is provided in Appendix A of this press release.

Set forth below is a summary of net premiums earned for the three- and six-month periods ended June 30, 2008 and 2007:

    Net Premiums Earned
                                     Three Months Ended     Six Months Ended
                                           June 30,             June 30,
                                       2008   2007 % Chg    2008   2007 % Chg
    ($ in millions)
    U.S. Public Finance               $86.7  $13.2  557%  $113.6  $26.8  324%
    U.S.