FGIC Corp files for Chapter 11 protection

NEW YORK (Reuters) - FGIC Corp filed for bankruptcy protection late on Tuesday, saying it was not paid dividends by its troubled bond insurance unit Financial Guaranty Insurance Co FGICL.PK since the onset of the financial crisis more than two years ago, according to court documents.

The privately held insurance holding company relies on dividend payments by its FGIC Co unit to sustain operations. It has not received dividends since January 2008, according to the filings submitted to the Southern District of New York bankruptcy court.

“The deterioration in the U.S. housing and mortgage markets that began in 2007 and continues through today has had a significant adverse impact on the financial condition of the FGIC,” the company said in the filing.

The parent company intends to restructure more than $300 million in debt while under bankruptcy protection, and expects to “progress quickly through the Chapter 11 case,” according to a statement.

None of the company’s subsidiaries or affiliates, including its wholly owned subsidiary Financial Guaranty Insurance Co (FGIC), are part of the Chapter 11 proceedings.

FGIC listed estimated unsecured debt of $391.5 million and estimated assets in the range of $10 million to $50 million.

A large number of the FGIC-insured mortgage securities have soured, leading to losses because of sustained increases in the number of U.S. mortgage defaults and foreclosures, the company said.

“As a result, during 2007, 2008 and 2009, FGIC paid claims on its insurance policies far in excess of historical levels,” the company said.

The continuing losses stemming from FGIC-insured mortgage securities resulted in FGIC’s surplus to decrease to about negative $1.640 billion.

FGIC Corp said as a result of FGIC’s inability to remit dividends to it since January 2008, it was unable to satisfy its obligations under the revolving credit agreement.

Law firm Kirkland & Ellis has been hired to assist in restructuring efforts.

The case is IN re: FGIC Corp, Case No. 10-14215, U.S. Bankruptcy Court, Southern District of New York.

Reporting by Sakthi Prasad in Bangalore and Chelsea Emery in New York; Editing by Valerie Lee and Matthew Lewis