Syncora Guarantee Inc. may have to start paying all of its outstanding insurance claims or face rehabilitation or liquidation.

The defunct bond insurer announced Monday that its regulator, the New York Insurance Department, last week lifted the order prohibiting it from paying claims and ordered the insurer to lay out a plan to pay accrued and unpaid claims, plus any new claims that arise.

Unpaid claims resulting from the suspension totaled $725.9 million as of March 31, according to the company’s first-quarter earnings filing.

The suspension was a consequence of the company’s deficit. The NYID requires bond insurers to maintain a policyholders’ surplus, or assets in excess of liabilities, of $65 million. Instead, Syncora had a policyholders’ deficit of $2.4 billion for year-end 2008. The shortfall was disclosed in April 2009, prompting the suspension.

Like most of its peers in the municipal bond insurance industry, Syncora’s balance sheet imploded during the credit crisis when the structured finance products it guaranteed turned toxic.

The insurer entered into a massive restructuring period in July 2009, after the NYID restricted it from paying any claims. Syncora paid counterparties to tear up its riskiest exposures, thereby freeing capital previously reserved for claims.

The restructuring was broadly successful.

By the end of the third quarter of 2009, policyholders’ equity climbed out of deficit and jumped to $181.1 million — almost three times the regulatory minimum. That surplus was down to $104.1 million by March 31, but remains above the required level.

The final transaction in the restructuring was finalized in mid-April. Afterward, Syncora requested more time —  as it did again Monday — instead of asking that NYID lift the claims-paying suspension. The suspension allows Syncora to temporarily husband its limited resources.

“Syncora Guarantee believes that it needs to complete further significant actions in order to satisfy its known and anticipated short- and medium-term liquidity needs and resume claims payments,” a press release said.

However, the insurer acknowledged that the suspension was originally intended to remain in effect until it had removed the impairment to its policyholders’ surplus. In accordance with that plan, the NYID lifted the suspension on June 17.

If Syncora is unable to come up with a payment plan, it may have to “submit itself to regulatory action by the NYID,” a company press release said.

Michael Moriarty, deputy superintendent for property and capital markets at the department, would not specify details but said “appropriate action” would be taken if there is no agreed-upon plan.

“Although the insurer has successfully corrected the insolvency via remediation plan involving commutations, purchases of insured residential mortgage backed securities, and a restructuring of the organization, Syncora has liquidity issues that may not allow it to immediately pay the accrued and unpaid claims,” he said. “Should the company not be able to resolve the liquidity issue, the department would take appropriate action.”

The unpaid claims include at least one municipal deal — sewer warrants issued by Jefferson County, Ala., which first defaulted on $46 million worth of Syncora-backed debt in June 2009.

Whether holders of that debt will receive payment is an open question.

Syncora sued the Jefferson County Commission as well as the deal’s lead underwriter, JPMorgan, in late April, alleging they “fraudulently induced” Syncora to provide more than $1 billion in insurance.

The bribes came to light in civil court filings by the Securities and Exchange Commission and a federal criminal corruption case involving former County Commission President Larry Langford, Montgomery bond dealer Bill Blount, and Alabama lobbyist Al LaPierre.

The SEC settled securities violations with JPMorgan and is pursuing civil cases against JPMorgan bankers Charles LeCroy and Douglas MacFaddin. Langford, now serving 15 years in prison but appealing his conviction, orchestrated refinancing of the now-failed sewer debt.

Michael Corbally, Syncora’s managing director and chief administrative officer, did not return requests to comment.

At the end of the first quarter, just weeks before the massive restructuring was finalized, Syncora continued to insure a public finance portfolio totaling a gross $39.9 billion — or, net of reinsurance contracts, $2.2 billion.

Its structured single risk portfolio totaled a gross $19 billion, or net $14 billion. Its insured portfolio also included $1.4 billion of collateralized loan obligations, plus $18 million of various collateralized debt obligations.

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