HAMILTON, Bermuda, Nov. 17 /PRNewswire-FirstCall/ -- Syncora Holdings Ltd. ('Syncora' or the 'Company') (NYSE: SCA) today announced results for the three- and nine-month periods ended September 30, 2008. The net loss available to common shareholders in the third quarter of 2008 was $1.339 billion, or $29.28 per common share, as compared to a net loss of $89.9 million, or $1.40 per common share, reported in the third quarter of 2007. The net loss for the quarter was primarily due to a net loss of $1.058 billion due to the net change in fair value of derivatives, as compared to a net loss of $131.5 million recorded in the comparable period in 2007. The Company also reported $213.0 million in net losses and loss adjustment expenses compared to $5.4 million in the third quarter of 2007 primarily due to adverse development relating to certain insured obligations supported by residential mortgage-backed securities ('RMBS'). Operating expenses increased $58.5 million to $84.1 million compared to the third quarter of 2007 resulting primarily from the substantially higher expenses for professional services in connection with the Company's restructuring. Also included in the net loss is $64.7 million in net realized losses on investments due primarily to other than temporary impairment on certain mortgage-backed securities and corporate bonds issued by financial institutions held in the Company's investment portfolio.

The net loss for the first nine months of 2008 was $1.928 billion, or $33.24 per common share, as compared to a net loss of $26.7 million, or $0.42 per common share, for the first nine months of 2007. The increase in net loss for the nine-month period ended September 30, 2008 was primarily attributable to a net loss of $1.280 billion due to the net change in fair value of derivatives compared to a net loss of $145.8 million for the comparable period in 2007. Net losses and loss adjustment expenses for the first nine months of 2008 were $710.2 million compared with $5.8 million during the comparable period in 2007 due to adverse development in certain insured obligations supported by RMBS. Operating expenses for the first nine months of 2008 increased $100.1 million to $176.3 million as compared to the first nine months of 2007 primarily due to expenses related to professional services in relation to the Company's restructuring and other expenses, including severance costs associated with the Company's staff reductions. These charges were partially offset by an increase in net premiums earned of $109.9 million and an increase in net investment income of $12.5 million reflecting the substantial period over period increase in invested assets.

As of September 30, 2008, the Company reported total shareholders' equity of $63.5 million and common shareholders' deficit of $183.1 million as compared to total shareholders' equity of $427.1 million and common shareholders' equity of $180.5 million at December 31, 2007.

'During the third quarter of 2008 U.S. residential mortgage performance continued to deteriorate, negatively impacting the Company's insured RMBS and ABS CDO portfolios and overall operating results. However, as previously announced, with the closing of the Master Transaction Agreement during the quarter, Syncora made progress in its restructuring. Additionally, the Company began the process of negotiating agreements with our financial counterparties to commute, terminate or restructure insured obligations related to our credit default swaps,' commented Susan Comparato, Acting Chief Executive Officer and General Counsel of Syncora. 'Moving forward, Syncora's senior management remains focused on the Company's strategic plan to reach agreements with our financial counterparties, address the needs of the public finance portfolio and remediate troubled credits in order to protect and enhance the Company's liquidity and maximize claims paying resources.'

Negotiations with Financial Counterparties

During the third quarter 2008, J.P. Morgan Securities Inc. ('J.P. Morgan') was engaged to assist Syncora Guarantee Inc. ('Syncora Guarantee') in identifying and analyzing strategic alternatives with respect to its portfolio of credit default swap ('CDS') and financial guarantee contracts. J.P. Morgan is working directly with Syncora and its legal advisors during negotiations with Syncora Guarantee's CDS and financial guarantee bank counterparties ('Financial Counterparties').

The original negotiation period and forbearance agreements provided for by the Master Commutation, Release and Restructuring Agreement (the 'Master Transaction Agreement') expired on October 15, 2008; however, Syncora Guarantee and its Financial Counterparties, except Lehman Brothers Inc., agreed to extend the period for negotiations to October 31, 2008. Subsequent to that expiration, the Company has engaged in discussions with the Financial Counterparties to further extend the negotiations and accompanying forbearance agreements, though there has been no further extension and there can be no assurance additional extensions will be obtained. The negotiations with the Financial Counterparties remain ongoing, but there can be no assurance the negotiations will ultimately result in an agreement.

New York State Insurance Department Statutory Capital

During the third quarter of 2008, the Company experienced significant adverse development of its anticipated claims on its guarantees of collateralized debt obligations of asset-backed securities ('ABS CDOs') and reserves for unpaid losses and loss adjustment expenses on its guarantees of RMBS which would have caused Syncora Guarantee to be unable to maintain its compliance with its $65 million minimum policyholders' surplus requirement under New York State law as of September 30, 2008. Policyholders' surplus is based on statutory-basis accounting practices which differ from accounting principles generally accepted in the United States of America ('GAAP').

However, at the request of the Company, the New York State Insurance Department ('NYID') (Syncora Guarantee's primary regulator) granted Syncora Guarantee permission to release statutory basis contingency reserves (which are not recognized under GAAP) on terminated polices, as well as on policies on which the Company has established case reserves. As a result of this permitted practice, Syncora Guarantee reported policyholders' surplus of $83.3 million at September 30, 2008. Absent such permitted practice the Company would have reported policyholders' surplus at September 30, 2008 of $19.1 million.

In accordance with the National Association of Insurance Commissioners ('NAIC') Accounting Practices and Procedures Manual ('NAIC SAP'), the discount rate used by Syncora Guarantee to determine the deduction from loss reserves for the time value of money as of September 30, 2008 was based on the average yield on its invested assets for the year ended December 31, 2007. At December 31, 2008, Syncora Guarantee will be required under NAIC SAP to re- measure such deduction from loss reserves based on the average yield on its invested assets for the year then ended. Absent the consummation of agreements with Financial Counterparties and other parties to commute, terminate, amend or restructure their existing agreements with the Company or favorable development of the Company's statutory case reserves, based on the annualized yield on Syncora Guarantee's invested assets for the nine months ended September 30, 2008, the Company expects that the re-measurement of the deduction from loss reserves based on the average yield on its invested assets at December 31, 2008 will cause it to report a policyholders' deficit. Additionally, absent the consummation of agreements with Financial Counterparties and other parties to commute, terminate, amend or restructure their existing agreements with the Company or favorable development of the Company's statutory case reserves, interest accretion on such reserves will cause Syncora Guarantee to not be able to comply with its regulatory minimum policyholders' surplus requirement as of December 31, 2008.

Non-compliance with its regulatory minimum policyholders' surplus requirement would permit the NYID to intervene in its operations. For example, under these or other circumstances, the New York State Superintendent of Insurance could seek court appointment as rehabilitator or liquidator of Syncora Guarantee.

Ability of the Company to Continue as a Going Concern

In the opinion of the Company, the principal factors which affect the Company's ability to continue as a going concern are: (i) its ability to successfully reach agreements with Financial Counterparties and other parties to commute, terminate or restructure the Company's CDS contracts and policies on terms satisfactory to the Company, as well as to address the Company's public finance business to the satisfaction of the New York Superintendent of Insurance, (ii) the risk of adverse loss development on its remaining in-force business not so commuted, terminated or restructured (particularly in regard to its exposure to residential mortgages) that would cause it not to be in compliance with its $65 million minimum policyholders' surplus requirement under New York state law, and (iii) the risk of intervention by the NYID as a result of the financial condition of Syncora Guarantee.

As a result of uncertainties associated with the aforementioned factors affecting the Company's ability to continue as a going concern, management has concluded that there is substantial doubt about the ability of the Company to continue as a going concern. The unaudited interim September 30, 2008 consolidated financial statements are prepared assuming the Company continues as a going concern and do not include any adjustment that might result from its inability to continue as a going concern. The Company will re-assess its going-concern status in the event agreements with the Financial Counterparties and other parties are reached. The Company's future going concern assessment will in large part be based on the amount, if any, of ABS CDO exposure that is reduced and risk of adverse loss development that is mitigated pursuant to such agreements, the Company's assessment of the risk of additional adverse loss development on its remaining in-force exposures, and Syncora Guarantee's compliance with its statutory minimum policyholders' surplus requirement.

Market-based Termination Payments on CDS Contracts

Substantially all of Syncora Guarantee's CDS contracts have mark-to-market termination payments following the occurrence of events that are outside Syncora Guarantee's control, such as Syncora Guarantee being placed into receivership or rehabilitation by the NYID, or the NYID taking control of Syncora Guarantee or, in limited cases, Syncora Guarantee's insolvency. There can be no assurance that counterparties to Syncora Guarantee's CDS contracts, including the Financial Counterparties, will not assert that events have occurred which require Syncora Guarantee to make mark-to-market termination payments. If such events were to occur, the aggregate termination payments that the Company would be required to pay would significantly exceed its ability to make such payments and, accordingly, such events would have a material adverse effect on the Company's financial position and results of operations. The fair value of the Company's CDS contracts recorded in its financial statements at September 30, 2008 does not consider the effect of mark-to-market termination payments.

Notification by New York Stock Exchange of Listing Standards Non- Compliance

Syncora was notified on November 11, 2008 by the New York Stock Exchange Regulation, Inc. ('NYSE Regulation') that it is not in compliance with the New York Stock Exchange's ('NYSE') continued listing standards, because over a consecutive 30-day trading period its average total market capitalization was less than $75 million and the Company's most recently reported shareholders' equity was below $75 million. On November 13, 2008 the Company was notified it was not in compliance with the NYSE's price criteria requiring listed shares to have an average closing price over $1.00 for the prior 30 trading day period. Under applicable NYSE procedures, the Company has 30 business days from the receipt of the notice to submit a plan to the NYSE to demonstrate its ability to achieve compliance with the continued listing standards within six months regarding the price criteria and 18 months regarding market capitalization and shareholders' equity standards. The Company expects to notify the NYSE that it intends to cure the market capitalization and average closing price deficiencies and maintain its listing. However, there can be no assurance that the Company will be successful in its attempt to cure the deficiencies and maintain its listing.

Operating Loss

For the third quarter of 2008, the Company reported an operating loss of $1.586 billion, or $34.69 per common share, compared to operating income of $46.0 million, or $0.72 per common share, for the third quarter of 2007. For the first nine months of 2008, the Company reported an operating loss of $2.877 billion, or $49.58 per common share, compared to operating income of $136.5 million, or $2.12 per diluted common share, for the first nine 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 less credit impairments on derivatives and (iii) costs associated with capital raising in prior quarters. 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 basic and diluted weighted average shares outstanding used in the 'per share' calculations was 45,716,686 for the third quarter of 2008 and 58,018,141 for the first nine months ended September 30, 2008. This compares to a basic and diluted weighted average shares outstanding of 64,158,647 for the third quarter of 2007 and a basic and diluted weighted average shares outstanding of 64,143,792 for the first nine months of 2007. The share count used in the 2008 earnings per share calculations ('EPS') reflects a reduction for 30,069,049 shares held in escrow as at September 30, 2008 for the benefit of Syncora Guarantee. Such shares have been deemed to be treasury stock for accounting purposes only.

Net Change in Fair Value of Derivatives

The net loss for the third quarter 2008 was primarily due to a charge of $1.058 billion, or $23.15 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. Net realized gains and losses and other settlements from credit derivative contracts in the third quarter of 2008 amounted to a charge of $353.0 million representing the previously reported $500 million payment to Merrill Lynch & Co. Inc. ('Merrill Lynch') in August 2008 to commute CDS contracts on eight ABS CDOs, offset by gains of $132.2 million on the commutation in August 2008 of third party purchased back-to-back credit protection and $14.8 million of premiums received from in-force CDS contracts. Net unrealized losses on Syncora's insured ABS CDO portfolio amounted to $705.4 million in the third quarter 2008, compared to net unrealized losses of $144.9 million in the comparable prior year quarter. Unrealized losses on derivatives reflect the reversal of the carrying value of derivative contracts which were settled or commuted during the quarter, as well as the change in the fair value of our in-force CDS contracts during the period.

Statement of Financial Accounting Standards No. 157 'Fair Value Measurements' requires the Company to estimate the fair value of its derivative liabilities incorporating 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 significantly from period to period dependent largely on the perception of Syncora Guarantee as a counterparty.

Net Cash Used in or Provided by Operating Activities

For the three months ended September 30, 2008, net cash used in operating activities was $1.433 billion compared to $101.1 million net cash provided by operating activities in the comparable three-month period in 2007. For the first nine months of 2008, net cash used in operating activities was $1.541 billion compared to $206.4 million net cash provided by operating activities in the comparable nine-month period in 2007.