Exhibit 4.2


EXECUTION COPY 


THIS DEED OF COVENANT AND INDEMNITY dated November 18, 2008 (the
“Commencement
Date”) is made by SYNCORA GUARANTEE INC.
(formerly known as XL Capital Assurance Inc.), a company
incorporated under the laws of the State of New York whose registered office is
at 1221 Avenue of the Americas, New York, NY 10020 (the “Company”) in
favour of SYNCORA PRIVATE TRUST COMPANY
LIMITED, a company
incorporated under the laws of Bermuda whose registered office is at Richmond
House, 12 Par La Ville Road, Hamilton HM08, Bermuda (the “Trustee”)
(each, a “Party” and, together, the “Parties”). 


BACKGROUND


	
 

	
 


	
(A)

	
This deed is
 supplemental to a trust (the “Trust”) established by a Declaration of
 Trust made by the Trustee of even date herewith (the “Trust Deed”) and
 known as The CCRA Purpose Trust. 


	
 

	
 


	
(B)

	
The Trustee is the
 present trustee of the Trust. 


	
 

	
 


	
(C)

	
The Company has
 agreed to covenant with and indemnify the Trustee, and its respective
 successors in title, directors, officers and employees and the directors,
 officers and employees of its successors in title (together, the “Covenantees”)
 in the terms set out below. 





OPERATIVE PROVISIONS


	
 

	
 

	
 

	
 


	
1.

	
DEFINITIONS


	
 

	
 

	
 


	
 

	
In this Deed,
 where the context admits, the following definitions shall apply and subject
 thereto the definitions and rules of construction contained in the Trust Deed
 shall apply: 


	
 

	
 

	
 


	
 

	
1.1

	
“Agreed Fees”
 means the Minimum Fee and the Annual Fee. 


	
 

	
 

	
 


	
 

	
1.2

	
“Annual Fee”
 means the sum of one hundred thousand United States Dollars (US$100,000) to
 be paid annually on the first anniversary after the Minimum Fee and
 thereafter until the Termination Date. 


	
 

	
 

	
 


	
 

	
1.3

	
“Excepted
 Liabilities” means any cost, expense or other liability incurred by any
 Covenantee in acting or omitting to act in a manner in which the trustee is
 not entitled to the protection of the exclusion of liability provisions
 contained in the Trust Deed. 


	
 

	
 

	
 


	
 

	
1.4

	
“Indemnity Fund”
 means: 


	
 

	
 

	
 


	
 

	
 

	
1.4.1

	
the sum of One
 million United States Dollars (US$1,000,000) transferred on the date of
 execution of this Deed to the Trustee by or on behalf of the Company; and 


	
 

	
 

	
 

	
 


	
 

	
 

	
1.4.2

	
the assets from
 time to time representing the above. 


	
 

	
 

	
 

	
 


	
 

	
1.5

	
“Liabilities”
 means any costs, expenses or any other liabilities of whatsoever nature (including
 any taxes and associated penalties and interest for which they are personally
 liable and any liability which may be payable to an Outgoing Trustee (as
 defined in clause 4.3 below)) incurred by the Trustee in or about the
 professed execution of the trusts and powers of the Trust (the “Service”),
 other than Excepted Liabilities. 


	
 

	
 

	
 


	
 

	
1.6

	
The “Minimum
 Fee” means the sum of one hundred and seventy-five thousand United States
 Dollars (US$175,000) to be paid on the date hereof. 












	
 

	
 

	
 

	
 


	
 

	
1.7

	
“Repayment Date”
 means: 


	
 

	
 

	
 


	
 

	
 

	
1.7.1

	
the date six
 months after the earlier of (i) the Termination Date of the Trust and (ii)
 the date on which the Trustee ceases to be trustee of the Trust; or 


	
 

	
 

	
 

	
 


	
 

	
 

	
1.7.2

	
such other date as
 shall be agreed between the Trustee and the Company. 


	
 

	
 

	
 

	
 


	
2.

	
COVENANT
 AND INDEMNITY


	
 

	
 


	
 

	
The Company hereby
 covenants with the Covenantees: 


	
 

	
 


	
 

	
2.1

	
To pay the Minimum
 Fee to the Trustee on the Commencement Date in consideration of the Service
 for the period beginning with the Commencement Date and ending on the first
 anniversary of the Commencement Date and thereafter until the Termination
 Date to pay the Annual Fee annually thereafter in advance for the period
 commencing on the date when payment is due and ending one year after that
 date; if the Trustee ceases to be trustee of the Trust, then the Trustee
 shall refund the last-paid Annual Fee pro rata for the portion remaining of
 the annual period ending on the date the next payment is due provided such
 refund shall not apply to the Minimum Fee. 


	
 

	
 

	
 


	
 

	
2.2

	
In addition to the
 Agreed Fees, to pay to the Trustee all reasonable legal costs and expenses
 and disbursements, stamp duty and all registration and document fees incurred
 by the Trustee in connection with the execution of the Trust and the continued
 administration of the Trust and all ancillary expenses in connection
 therewith (the “Legal Fees and Expenses”); 


	
 

	
 

	
 


	
 

	
2.3

	
At all times fully
 and effectually to indemnify the Covenantees in respect of any Liabilities
 which are not otherwise paid to the Covenantees from the Trust Fund pursuant
 to the provisions of the Trust Deed. 


	
 

	
 

	
 


	
 

	
2.4

	
To reimburse the
 Covenantees for any legal or other expenses (including, without limitation,
 reasonable expenses of any experts, counsel or agents) reasonably incurred by
 any of the aforesaid persons in connection with investigating, preparing for
 or defending against any action or claim, whether or not in connection with
 any pending or threatened litigation, relating to the Liabilities as such
 expenses are incurred. 


	
 

	
 

	
 


	
3.

	
PROCEDURE
 FOR INDEMNIFICATION


	
 

	
 


	
 

	
3.1

	
If the Company has
 become obligated to indemnify pursuant to clause 2.3 or if any suit, action,
 investigation, claim or proceeding is begun, made or instituted as a result
 of which the Company may become obligated to a Covenantee (for the purposes
 of this clause 3, the “Indemnified Party”) hereunder, the Indemnified
 Party shall give written notice to the Company within a sufficiently prompt
 time to avoid prejudice to the Company, specifying in reasonable detail the
 facts upon which the claimed right to indemnification is or may be based;
 provided, however, that the failure of the Indemnified Party to give notice
 as provided in this clause 3 shall not relieve the Company of its obligations
 hereunder, except to the extent that the Company is actually prejudiced by
 such failure to give notice. 


	
 

	
 

	
 


	
 

	
3.2

	
The Company may
 elect to defend, compromise and settle, at the Company’s own expense and by
 the Company’s own counsel reasonably satisfactory to the Indemnified Party,
 any third party claim. If the Company elects to defend a third party claim,
 it shall, within 30 days 












	
 

	
 

	
 

	
 


	
 

	
 

	
of its receipt of
 notice of such third party claim (or sooner, if the nature of such third
 party claim so requires), notify the Indemnified Party of its intent to do so
 and such Indemnified Party shall cooperate in the defence of such third party
 claim to the extent reasonably requested in writing by the Company. Even
 after notice from the Company of its election to assume the defence of a
 third party claim, the Company shall be liable to such Indemnified Party
 under this clause 3 for all legal or other expenses subsequently incurred by
 such Indemnified Party in connection with the defence thereof. If the Company
 elects not to defend against a third party claim, such Indemnified Party may
 defend, compromise and settle such third party claim subject to the
 conditions set forth below. Notwithstanding the foregoing, (i) neither the
 Company nor an Indemnified Party, as the party controlling the defence of a
 third party claim, may compromise or settle any claim or consent to the entry
 of any judgment for other than monetary damages without the prior written
 consent of the Company or the Indemnified Party, as applicable; provided,
 that (upon reasonable notice thereof) consent to such compromise or
 settlement or such entry of a judgment shall not be unreasonably withheld or
 delayed, and (ii) the Company shall not consent to the entry of any judgment
 or enter into any compromise or settlement which does not include as an
 unconditional term thereof the giving by the claimant or plaintiff to such
 Indemnified Party and all other Indemnified Parties, subject to such third
 party claim, of a full and final release from all liability in respect of
 such claim or litigation. 


	
 

	
 

	
 


	
 

	
3.3

	
Any claim on
 account of an indemnifiable loss hereunder which does not result from a third
 party claim shall be asserted by written notice given by the Indemnified
 Party to the Company. 


	
 

	
 

	
 


	
4.

	
INDEMNITY
 FUND


	
 

	
 


	
 

	
4.1

	
The Trustee shall
 hold the Indemnity Fund until the Repayment Date, or until the Trustee ceases
 to be trustee of the Trust under the Trust Deed (whereupon the Trustee shall
 transfer the Indemnity Fund to their successor trustee, appointed in
 accordance with the provisions of the Trust Deed) and shall have recourse to
 payment or reimbursement from the Indemnity Fund in the following
 circumstances, limited to those amounts necessary to satisfy such payment or
 reimbursement obligation (for the avoidance of doubt, this section 4.1 does
 not provide general access to the Indemnity Fund for any amounts beyond that
 necessary to remedy such violation): 


	
 

	
 

	
 


	
 

	
 

	
4.1.1

	
The Company does
 not pay any part of the Agreed Fee or Minimum Fee on the due date;


	
 

	
 

	
 

	
 


	
 

	
 

	
4.1.2

	
The Company does
 not render payment in respect of any Legal Fees and Expenses within thirty
 (30) calendar days of the issuance of the relevant invoice; or


	
 

	
 

	
 

	
 


	
 

	
 

	
4.1.3

	
The Company does
 not render payment in respect of any Liabilities under clause 2.3 above,
 subject to the procedures outlined in Section 3.


	
 

	
 

	
 


	
 

	
4.2

	
On the Repayment
 Date, the Trustee shall transfer the Indemnity Fund to the Company in
 accordance with payment instructions provided in writing to the Trustee by
 the Company provided, that the Trustee shall be able to retain such portion
 of the Indemnity Fund which is reasonably sufficient to meet the those
 Liabilities identified in written notices delivered to the Company in
 accordance with the provisions of clause 3.1 above. The Trustee shall release
 the retained portion of the Indemnity Fund at such time and to the extent
 that such Liability 












	
 

	
 

	
 

	
 


	
 

	
 

	
is no longer
 reasonably expected or has become barred due to relevant statutory limitation
 provisions or otherwise is incapable of being advanced. 


	
 

	
 

	
 


	
 

	
4.3

	
Without prejudice
 to the entitlement of a retiring or removed trustee to request that the
 trustee be granted an express indemnity on retirement or removal, the rights
 of indemnity hereunder shall endure following the retirement or removal,
 death or (as the case may be) liquidation of a trustee (an “Outgoing
 Trustee”) to the intent that an Outgoing Trustee and his personal
 representatives or (as the case may be) its liquidator shall be entitled to
 assert the same rights of indemnity in respect of costs, expenses or other
 liabilities of whatsoever nature (including any taxes for which the Outgoing
 Trustee is personally liable) as the Outgoing Trustee would have been
 entitled to assert had the Outgoing Trustee remained in office as a trustee
 of this Trust at the time when the right of indemnity is asserted. 


	
 

	
 

	
 

	
 


	
 

	
4.4

	
The Indemnity Fund
 shall be invested and reinvested by the Trustee in readily marketable direct
 obligations of the Government of the United States or any agency or
 instrumentality thereof or readily marketable obligations unconditionally
 guaranteed by the full faith and credit of the Government of the United
 States. The Trustee shall report or cause to be reported to the Company on
 the last day of each month earnings on the Indemnity Fund. 


	
 

	
 

	
 


	
5.

	
ASSIGNMENT


	
 

	
 


	
 

	
Neither of the
 Parties shall assign or transfer or permit the assignment or transfer of this
 Deed without the prior written consent of the other. All such assignments
 shall be subject to all necessary regulatory approvals. 


	
 

	
 


	
6.

	
AMENDMENTS
 AND WAIVERS


	
 

	
 

	
 

	
 


	
 

	
This Deed may not
 be amended, and none of its provisions may be modified, except expressly by
 an instrument signed by the Parties. No failure or delay of a Party in
 exercising any power or right hereunder shall operate as a waiver thereof,
 nor shall any single or partial exercise of any such right or power, or any
 abandonment or discontinuance of steps to enforce such a right or power,
 preclude any other or further exercise thereof or the exercise of any other
 right or power. No waiver by a Party of any provision of this Deed or consent
 to any departure therefrom shall in any event be effective unless the same
 shall be in writing and signed by such Party, and then such waiver or consent
 shall be effective only in the specific instance and for the purpose for
 which given. 


	
 

	
 


	
7.

	
ENTIRE
 AGREEMENT


	
 

	
 


	
 

	
This Deed
 constitutes the entire agreement between the Parties with respect to the
 subject matter hereof and supersedes all other prior negotiations,
 commitments, agreements and understandings, both written and oral, between
 the Parties with respect to the subject matter hereof. 


	
 

	
 


	
8.

	
GOVERNING
 LAW


	
 

	
 


	
 

	
This Deed shall be
 governed by the law of Bermuda and the Company submits to the exclusive
 jurisdiction of the Courts of Bermuda. 












	
 

	
 


	
9.

	
NOTICES


	
 

	
 


	
 

	
Any notice given
 under this Deed shall be valid in any legible form and shall be duly
 delivered on transmission to or receipt at the addresses of the Parties noted
 above. 





[Signature
Page Follows]






IN WITNESS whereof, the Company has executed
and delivered this instrument as a deed on the date first
shown above.


THE COMMON SEAL OF THE COMPANY 


was hereunto affixed in the presence of:


	
 

	
 

	
 


	
 

	
Director

	
/s/ Elizabeth Keys


	
 

	
 

	



	
 

	
 

	
 


	
 

	
Secretary

	
/s/ Susan Comparato


	
 

	
 

	






[SIGNATURE PAGE TO TRUST INDEMNITY]






Acknowledged
and Agreed to by: 


SYNCORA
PRIVATE TRUST COMPANY LIMITED 




	
 

	
 


	
By:

	
/s/ Charles Collis


	
 

	








	
 

	
 


	
Name: 

	
 CHARLES COLLIS







	
 

	
 


	
Title:

	
  DIRECTOR
















[SIGNATURE PAGE TO TRUST INDEMNITY]