Trenwick Announces Default and “Agreement in Principle” with Note Holders for Extension

Bermuda-based Trenwick Group Ltd. acknowledged that its wholly owned subsidiary, Trenwick America Corporation, is in default under the Indenture with respect to its 6.70% Senior Notes due April 1, 2003, for failure to pay principal and interest on them as of the due date.

The company indicated, however, that it has reached an agreement in principle with the beneficial holders of all of the Senior Notes “to waive the default and to extend the maturity date of the Senior Notes until August 1, 2003.”

The agreement in principle provides that Trenwick America will pay to the Senior Noteholders all interest accrued through April 1, 2003, in the amount of $2,512,500.00. The announcement added that “the terms of the agreement in principle are subject to negotiation and execution of definitive agreements, including agreements among the Senior Noteholders, and that there can be no assurance that definitive agreements will be reached with, or among, the Senior Noteholders.”

It also stated that “the terms of the agreement are subject to the approval of certain banks that have issued letters of credit on behalf of subsidiaries of Trenwick in support of its Lloyd’s operations under a senior secured credit facility and that the terms have been submitted to such banks for their approval.” The default on the Senior notes has also been deemed a default under the terms of Trenwick’s Letter of Credit, and the company said it would be in negotiations with these credit providers to try and come to terms on obtaining “waivers from, or amendments to agreements with, these parties, consistent with its agreement with the Senior Noteholders”

Trenwick has been extremely hard pressed to cope with its financial obligations. Last November it made an agreement with Berkshire Hathaway to provide additional capital and a quota share reinsurance treaty to its Lloyd’s syndicate 839. It warned that “If any of the above-mentioned creditors should determine to exercise the rights available to them as a result of the default described above, or take other action with respect to the assets of Trenwick or its subsidiaries, Trenwick and/or one or more of its subsidiaries may be forced to seek protection from creditors through proceedings commenced in Bermuda and other jurisdictions including the United States.”

It also observed that “the insurance regulatory authorities having jurisdiction over Trenwick’s insurance company operating subsidiaries may commence voluntary or involuntary proceedings for the formal supervision, rehabilitation or liquidation of such subsidiaries, or one or more of the creditors of Trenwick or its subsidiaries may commence proceedings against Trenwick or its subsidiaries.”

It appears likely that either or both of the above may take place soon, unless all of the insurer’s creditors agree to the August extension. That would at least give Trenwick an additional three months to try and put together a refinancing plan acceptable to its creditors.