Financial Guaranty Insurance Company (FGIC) has made an announcement regarding its entry into a transaction support agreement with an ad hoc group of certain holders of FGIC-insured securities. The agreement, dated February 29, 2024, aims to accelerate the run-off of FGIC’s insured portfolio as outlined in the First Amended Plan of Rehabilitation for FGIC, dated June 4, 2013.
According to the agreement, on the effective date of the proposed transaction, all FGIC policies with outstanding Deferred Payment Obligations (DPO) or DPO Accretion, along with projected future claims, will be satisfied and discharged. FGIC will make cash payments to the holders of such policies based on an aggregate amount detailed in Annex 1 of the agreement.
The total gross amount of these payments, termed Permitted Policy Distributions, is estimated to be approximately $1.841 billion. This estimation reflects the net present value of future DPO, DPO Accretion, and claim payments projected by FGIC under a long-term run-off scenario.
Additionally, under the proposed transaction, all other FGIC policies will be novated to Assured Guaranty Corp. upon its effective date, as outlined in a Novation Agreement dated February 8, 2024. FGIC will pay Assured Guaranty $32 million on the effective date of the novation.
However, the proposed transaction is subject to review and approval by the New York State Department of Financial Services (NYSDFS) and the Supreme Court of the State of New York. It is anticipated that the NYSDFS will seek to reopen FGIC’s rehabilitation proceeding to obtain court approval for the discharge and/or novation of FGIC policies.
Upon the effective date of the proposed transaction, FGIC will pay a lock-up fee of $27 million to the Ad Hoc Group for their support. Additionally, members of the Ad Hoc Group and other supporting holders will receive a joinder fee in cash. The estimated expenses related to completing the proposed transaction, including Novation Agreement expenses, advisor fees, legal fees, and compensation-related expenses, are approximately $147 million.
Upon the effective date of the proposed transaction, the restrictions imposed by the Rehabilitation Plan on FGIC’s preferred and common stockholder rights will generally be lifted, and FGIC will emerge from rehabilitation as a solvent company with no policy obligations.
