Security Capital Assurance Ltd Reaches Agreements with XL Capital Ltd and Merrill...

Security Capital Assurance Ltd Reaches Agreements with XL Capital Ltd and
Merrill Lynch & Co., Inc.

HAMILTON, Bermuda, July 28 /PRNewswire-FirstCall/ -- Security Capital
Assurance Ltd ("SCA" or the "Company") (NYSE: SCA) today announced that SCA
and its principal operating subsidiaries, XL Capital Assurance Inc. ("XLCA")
and XL Financial Assurance Ltd ("XLFA"), entered into an agreement (the
"Master Transaction Agreement") with XL Capital Ltd. ("XL Capital") and
certain of XL Capital's affiliates. Certain financial institutions that are
counterparties (the "Financial Counterparties") to credit default swap
agreements with XLCA are also parties to the Master Transaction Agreement.
The Master Transaction Agreement provides for the termination, elimination
or commutation of certain reinsurance, guarantees and other agreements with XL
Capital and its subsidiaries in exchange for a payment by XL Capital to SCA of
$1.775 billion in cash and 8 million shares of XL Capital Class A Ordinary
Shares to SCA's subsidiaries, and the transfer of XL Capital's 46% ownership
stake in SCA to a trust.
Concurrent with the Master Transaction Agreement, SCA also entered into an
agreement (the "Merrill Agreement") with Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the termination of eight credit default swaps and the related
financial guarantee insurance policies that were issued by XLCA.
Additionally, as of June 30, 2008, due to significant adverse development
on loss reserves, XLCA will report negative statutory surplus and XLFA will
report negative total statutory capital and surplus. Upon the successful
closing of the transactions contemplated by the Master Transaction Agreement,
the Merrill Agreement and related agreements, XLCA expects to have positive
statutory surplus, and XLFA expects to have positive total statutory capital
and surplus.
SCA and XL Capital have obtained approval from the New York Insurance
Department and the Bermuda Monetary Authority for the Master Transaction
Agreement and the transactions contemplated thereby. Other required approvals
related to the agreement have been received from the Delaware Department of
Insurance. The New York Insurance Department has also approved the Merrill
Agreement and the transactions contemplated thereby.
"The agreements with XL Capital and Merrill Lynch represent a significant
step in the restructuring process of SCA and are critical to our efforts to
stabilize the company," commented Paul S. Giordano, Chief Executive Officer of
SCA. "While we are very pleased with the progress made to date, our company
remains exposed to potentially significant adverse loss development and there
is still much work to be done. In the next phase, we will commence
discussions with swap counterparties seeking to commute, terminate or
restructure our remaining credit default swaps. The New York Insurance
Department, the Bermuda Monetary Authority, the Delaware Department of
Insurance and the UK Financial Services Authority, as well as our other
regulators, have been extremely supportive in this process, and we look
forward to continuing to work constructively with them in the future."
Master Transaction Agreement
According to the Master Transaction Agreement signed today, a number of
reinsurance, guarantees and other arrangements among SCA and its subsidiaries
and XL Capital and its subsidiaries will be terminated, eliminated or commuted
in return for the payment by XL Capital and certain of its affiliates of
$1.775 billion in cash, 8 million of XL Capital's Class A Ordinary Shares to
XLCA and XLFA and the transfer of XL Capital's 46% ownership of SCA into a
trust.
It is expected that the SCA shares currently owned by XL Capital will be
transferred at the closing of the Master Transaction Agreement into a trust
for the benefit of XLCA until such time as an agreement between XLCA and the
Financial Counterparties is reached, and thereafter such SCA shares will be
held for the benefit of the Financial Counterparties. To the extent that the
required regulatory approvals for the transfer are not received prior to such
closing, the SCA shares will be deposited into escrow pending the transfer.
Upon any such deposit into escrow, XL will irrevocably disclaim any and all
voting, economic and other rights with respect to the SCA shares. In
connection with the transfer of the SCA shares, XL Capital will no longer have
the right to nominate directors to SCA's Board of Directors. As a condition
to closing, the four XL Capital-nominated Directors on SCA's Board of
Directors, Messrs. Fred Corrado, Paul Hellmers, Gardner Grant, Jr. and
Jonathan Bank, are expected to resign from SCA's Board of Directors at
closing.
After the closing of the transactions contemplated by the Master
Transaction Agreement, substantially all reinsurance agreements and guarantees
with XL Capital and subsidiaries will be eliminated.
Merrill Agreement
Pursuant to the Merrill Agreement, SCA, XLCA, Merrill Lynch, Merrill Lynch
International ("MLI") and eight trusts affiliated with SCA, the obligations of
which are guaranteed by policies issued by XLCA, agreed to terminate eight
credit default swaps (the "Swaps") and the related financial guarantee
insurance policies issued by XLCA, with an insured gross par outstanding as of
June 30, 2008 of $3.74 billion, in exchange for a payment by XLCA to Merrill
Lynch of an aggregate amount of $500 million. As part of the closing of the
transactions contemplated by the Merrill Agreement, the parties will provide
mutual releases of claims with respect to the Swaps and the related policies.
In addition, XLCA and MLI have agreed to dismiss, after the closing of the
transaction, the litigation related to seven of the Swaps.
Second Quarter 2008 Developments
SCA also announced that it has conducted a review of its June 30, 2008
loss reserves. Based on the preliminary results of this review, SCA believes
that its case reserves will have increased substantially as of June 30, 2008,
primarily due to significant deterioration with respect to the Company's
exposure to collateralized debt obligations of asset-backed securities and
residential mortgage-backed securities. As a result, SCA's New York-based
insurance subsidiary, XLCA, will report negative statutory surplus and its
Bermuda-based reinsurance subsidiary, XLFA, will report negative total
statutory capital and surplus as of June 30, 2008. Upon the successful
closing of the transactions contemplated by the Master Transaction Agreement,
the Merrill Agreement and related agreements, pending the satisfaction of the
conditions noted below, XLCA expects to have positive statutory surplus and
XLFA expects to have positive total statutory capital and surplus. In the
absence of the consummation of the transactions contemplated by the Master
Transaction Agreement, the Merrill Agreement and related agreements, XLCA and
XLFA would likely be subject to regulatory action by their primary regulators,
the New York Insurance Department and the Bermuda Monetary Authority. As a
result of these developments, there is substantial doubt about the Company's
ability to continue as a going concern. Upon the closing of the transactions
contemplated by the Master Transaction Agreement, the Merrill Agreement and
other related agreements, SCA intends to re-assess whether substantial doubt
exists about the Company's ability to continue as a going concern.
Closings of the Master Transaction Agreement and the Merrill Agreement
The closings of the transactions contemplated by the Master Transaction
Agreement, the Merrill Agreement, and other agreements are expected to occur
concurrently in early August 2008. In addition to customary closing
conditions, the closings are also subject to the completion by XL Capital of a
registered public offering of its equity and equity units announced today.
The parties may choose to terminate the Master Transaction Agreement if the
closing does not occur by August 15, 2008. Further, concurrent with the
execution of the Master Transaction Agreement, XLFA has entered into an
agreement with Financial Security Assurance to commute all business reinsured
by XLFA under reinsurance agreements between the parties. XLCA has agreed to
directly reinsure a portion of such commuted business. In addition, XLFA has
entered into agreements to commute certain other ceded reinsurance contracts.
The negotiations of the Master Transaction Agreement and the Merrill
Agreement, as well as the continuing discussions among SCA, certain
policyholders and other interested parties, have been facilitated by the New
York Insurance Department. SCA has also worked closely with the Bermuda
Monetary Authority, the UK Financial Services Authority, the Delaware
Department of Insurance and other relevant authorities regarding these
agreements.
While SCA expects the transactions contemplated by the Master Transaction
Agreement, the Merrill Agreement and the other related agreements to close by
August 15, 2008, there can be no assurance that all the closing conditions
will be satisfied or waived. Therefore, there can be no assurance that the
transactions described under the Master Transaction Agreement, the Merrill
Agreement and other related agreements will be consummated or that the New
York Insurance Department and the Bermuda Monetary Authority, or other
regulators, will not take regulatory action at any time with respect to SCA's
operating subsidiaries.
Agreement with Financial Counterparties
In consideration of the releases and waivers agreed to by the Financial
Counterparties as part of the Master Transaction Agreement, XLCA has agreed to
hold an aggregate amount of $820 million in cash (plus the interest thereon,
premiums paid by the Financial Counterparties from today through October 15,
2008 and any proceeds from the sale by the trust of the SCA shares, in the
event such shares are sold) for the purpose of commuting, terminating,
amending or otherwise restructuring existing agreements with the Financial
Counterparties pursuant to an agreement to be negotiated with the Financial
Counterparties. In the event that such agreement is not reached by October
15, 2008, XLCA has agreed to use such proceeds only to pay claims under the
credit default swaps of the Financial Counterparties. In addition, through
such date, XLCA and XLFA have agreed to restrictions on their ability to
commute, terminate, amend or otherwise restructure policies and contracts to
which either is a party.
Agreement with Credit Agreement Lenders
On July 28, 2008 SCA also entered into an amendment, forbearance and
limited waiver agreement (the "Credit Agreement Amendment") with respect to
its Credit Agreement, dated as of August 1, 2006, as amended (the "Credit
Agreement"). Pursuant to the Credit Agreement Amendment, SCA agreed (i) to
permanently reduce the availability under its revolving credit facility from
$250,000,000 to zero, (ii) to reduce the availability under the letter of
credit facility to the amount of the letter of credit exposure as of July 28,
2008, and (iii) that upon the closing of the Master Transaction Agreement, it
will cash collateralize the remaining letters of credit after giving effect to
the transactions contemplated by the Master Transaction Agreement. In
consideration of the foregoing, the lenders under the Credit Agreement have
agreed to (i) forbear from declaring certain defaults, if any, set forth in
the Credit Agreement Amendment, (ii) waive such defaults, if any, upon the
satisfaction of certain conditions set forth in the Credit Agreement
Amendment, and (iii) grant certain waivers in connection with the consummation
of the Master Transaction Agreement.
Corporate Name Change
As previously announced, SCA will formally change its corporate name on
August 4, 2008 from Security Capital Assurance Ltd. to Syncora Holdings Ltd.
SCA's operating subsidiaries will also change names on the same date: XLCA
will become Syncora Guarantee Inc. and XLFA will become Syncora Guarantee Re
Ltd. As of August 4, 2008, SCA is no longer permitted to use the "XL" name.
The Company's stock ticker symbol will remain "SCA".
About Security Capital Assurance Ltd
Security Capital Assurance Ltd is a Bermuda-domiciled holding company
whose common shares are listed on the New York Stock Exchange (NYSE: SCA).
For more information please visit http://www.scafg.com.
FORWARD-LOOKING STATEMENTS
This release contains statements about future results, plans and events
that may constitute "forward-looking" statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. You are cautioned that these statements are not guarantees of future
results, plans or events and such statements involve risks and uncertainties
that may cause actual results to differ materially from those set forth in
these statements. Forward-looking statements are subject to a number of risks
and uncertainties, many of which are beyond the Company's control. These
factors include, but are not limited to: the outcome of SCA's negotiations
with third parties concerning the restructuring of SCA; the closing of the
transactions contemplated by the Master Transaction Agreement, Merrill
Agreement and other related agreements; the decision by the New York Insurance
Department and the Bermuda Monetary Authority, or other regulators to take
regulatory action with respect to SCA's operating subsidiaries at any time;
recent and future rating agency statements and ratings actions; the outcome of
our negotiations with the Financial Counterparties concerning the commutation,
termination, amendment or otherwise restructuring of their credit default swap
contracts; the Company's ability to successfully implement its strategic plan;
higher risk of loss in connection with obligations guaranteed by the Company
due to recent deterioration in the credit markets stemming from the poor
performance of subprime residential mortgage loans; the suspension of writing
substantially all new business and the Company's ability to continue to
operate its business in its historic form; developments in the world's
financial and capital markets that adversely affect the performance of the
Company's investments and its access to such markets; the performance of
invested assets, losses on credit derivatives or changes in the fair value of
credit derivatives; the availability of capital and liquidity; the timing of
claims payments and the receipt of reinsurance recoverables; greater frequency
or severity of claims and loss activity including in excess of the Company's
loss reserves; changes in the Company's reinsurance agreements with certain of
its subsidiaries; the impact of provisions in business arrangements and
agreements triggered by the ratings downgrades; the impact of other triggers
in business arrangements including credit default swap contracts; changes in
regulation, tax laws, legislation or accounting policies or practices; changes
in officers; general economic conditions; changes in the availability, cost or
quality of reinsurance or retrocessions; possible downgrade of the Company's
reinsurers; possible default by the counterparties to the Company's
reinsurance arrangements; the Company's ability to compete; changes that may
occur in Company operations and ownership as the Company matures; and other
additional factors, risks or uncertainties described in Company filings with
the Securities and Exchange Commission, including in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2007, and also
disclosed from time to time in subsequent reports on Form 10-Q and Form 8-K.
Readers are cautioned not to place undue reliance on forward-looking
statements which speak only as of the date they are made. The Company does not
undertake to update forward-looking statements to reflect the impact of
circumstances or events that arise after the date the forward-looking
statements are made.
Contact:

Investors
Frank Constantinople
+1 441-279-7450
frank.constantinople@scafg.com

Media
Michael Gormley
+1 441-279-7450
michael.gormley@scafg.com

Michele Loguidice
+1 212-333-3810
mloguidice@brunswickgroup.com

SOURCE Security Capital Assurance Ltd

Investors, Frank Constantinople, +1-441-279-7450,
frank.constantinople@scafg.com, or Media, Michael Gormley, +1-441-279-7450,
michael.gormley@scafg.com, both of Security Capital Assurance; or Michele
Loguidice, The Brunswick Group, +1-212-333-3810,
mloguidice@brunswickgroup.com, for Security Capital Assurance