Bermuda-based insurer XL Capital Ltd. last night announced it had raised $2.875 billion in capital and closed the $1.9 billion deal that will eliminate almost all of its exposure to bond insurer Syncora Holdings Ltd. (formerly known as Security Capital Assurance, or SCA).

XL announced last week it would pay Syncora $1.78 billion in cash, plus eight million shares, to terminate 98 percent of the reinsurance and guarantee agreements with the financial guarantor it spun off in 2006.

It aimed to fund the deal through a share and equity unit offering aimed at raising $2.5 billion. After underwriters exercised their over-allotment options in full, the offering had raised $2.875 billion by the time it closed last night.

Additionally, XL exercised the put option under its Mangrove Bay contingent capital facility that had been in place since July 2003, which resulted in net proceeds of approximately $500 million in exchange for the issuance of preference ordinary shares.

Before the announcement, XL shares climbed four percent to $19.35 in New York Stock Exchange trading yesterday.

Fitch Ratings responded to last night's news by affirming XL's ratings and removing its negative watch.

Meanwhile Bermuda-based Syncora simultaneously announced the closing of its $500 million deal with Merrill Lynch allowing it to cancel $3.5 billion in credit-default swaps.

Syncora added that four of its board members — Fred Corrado, Paul Hellmers, Gardner Grant, Jr., and Jonathan Bank — had resigned, in conjunction with the closing of the XL deal.

Syncora, whose shares fell 11.3 percent to $0.28 yesterday, will announce its second-quarter results after the close of the markets next Monday.

XL also said last week it would eliminate 165 jobs globally, including 47 at its Bermuda headquarters, as it streamlined its operation to concentrate on its core property and casualty operations.

"The support for our capital raise has been tremendous," XL chief executive officer said in a company statement last night. "I believe its success is a clear endorsement of the XL franchise, of our re-focused strategy and commitment to our dual insurance and reinsurance platform, and a vote of confidence in our ability to compete and win business.

"With SCA behind us and with our enhanced commitment to risk management, XL will concentrate on doing what it does best, which is underwriting the risks of our customers. I would like to personally thank our investors, old and new, and our customers, brokers and employees for helping to make XL one of the leading underwriting organisations in the world."

The joint book-running managers for XL's offerings were Goldman, Sachs & Co. and UBS Investment Bank. The Blackstone Group, L.P. acted as adviser in connection with the SCA transactions and Cadwalader, Wickersham & Taft, LLP acted as XL's counsel in connection therewith. Cahill, Gordon & Reindel LLP acted as XL's counsel in connection with the offerings.

Fitch said in a statement: "XL's investment portfolio remains susceptible to additional mark-to-market losses given continued credit market volatility especially related to commercial and residential mortgage-backed securities; collateralised debt obligations (CDOs) and financial sector and consumer cyclical holdings."

The ratings agency added: "The company has announced a number of changes designed to increase the stability of earnings and capital including the exploration of strategic alternatives for its life reinsurance business, potential future realignment of its investment portfolio and simplification of its management structure.

"Additionally, XL has reduced its catastrophe exposure and Fitch believes the company's overall loss reserve position is stronger than in recent years."