Syncora Holdings: Operating Business Sold, Cash and NOL Stub

Syncora Holdings (SYCRF), through its subsidiary Syncora Guarantee ("SGI"), is a provider of bond insurance that ran into a whole bunch of trouble following the financial crisis.  Like the other bond insurers, Syncora branched out beyond municipal insurance (to be fair, they did also suffer with Detroit and Puerto Rico) to subprime RMBS, CDOs and other toxic securitizations of the pre-crisis era.  During and following the recession, many of the supposedly AAA structured securities were impaired and Syncora was called upon to make good on their guarantee which forced the insurer to the brink of insolvency.

In the decade since, Syncora has been in constant litigation (they scored several huge settlements with banks that issued subprime RMBS) and restructuring mode.  Previously a bit of a black box, Syncora last month sold SGI to an affiliate of credit manager Golden Tree Asset Management for $392.5MM with a go-shop period through September 13th.  It then re-struct the sale price higher with Golden Tree this past week to $429MM plus the assumption of some preferred share pass-thru securities that wasn't originally included in the deal after receiving an unnamed unsolicited offer (the go-shop was also cancelled).  Once the transaction with Golden Tree closes in Q4/Q1, Syncora plans to distribute the sale proceeds to shareholders, all that will remain is $30+MM of cash and miscellaneous assets (valued at $45-60MM total including the cash) plus around $300MM of net operating losses.

Syncora has 87 million shares outstanding, assuming about $20MM in leakage and other deal related expenses, the company will likely distribute cash back to shareholders roughly equaling today's $4.70 share price.

Assumes no value attributed to the NOL

What is the company going to do with the stub after the SGI deal closes?  Anyone's guess, it will be a tiny shell with a few random assets (waterfront raw land in Detroit, 80% of Swap Financial), management claims to be in active conversations with their advisers on a transaction, but the NOL monetization dream is elusive for many if not nearly all similar NOL shell stories.  So maybe the 30% discount to NAV needs to be a touch higher, at a 50% discount I come up with a 16% IRR, still an attractive situation.

Disclosure: I own shares of SYCRF