CDS Writer Syncora Stops Payments

Syncora Guarantee, a New York underwriter of credit protection on residential mortgage backed securities, suspended all claims payment under the order of insurance authorities. Oddly, the same day the firm announced an offer:

The BCP Voyager Master Funds SPC, Ltd., acting on behalf of and for the account of, the Distressed Opportunities Master Segregated Portfolio (the "Fund"), today announced that it has extended the expiration date of the Fund's offer for 56 classes of residential mortgage backed securities ("RMBS") insured by Syncora Guarantee Inc. ("Syncora Guarantee") to 11:59 p.m., New York City time, on Friday, May 15, 2009. The Fund also announced that all holders of RMBS that tender into the offer on or prior to the expiration date will be eligible to receive the premium price that was previously offered only to holders that tendered their RMBS prior to the early consideration date.

In other words, RMBS holders have no credit protection from any credit default swap purchased through Syncora Guarantee. Fifty six classes of RMBS securities insured by Syncora are now in deeper limbo than before. Syncora Holdings was a division of XL Capital. Bermuda based XL established a firewall from Syncora's burning CDS's. XL transferred its 46% ownership into a trust.

This one story says much about America's free wheeling financial system. Selling products one won't back, using offshore corporations to ringfence liability and tax obligations, and leaving the customer in the cold with few good options.