S&P Lowers Trenwick Ratings to ‘CCC+’

November 12, 2002

Standard & Poor’s announced that it has lowered its counterparty credit rating on Trenwick Group Ltd. to ‘CCC+’ from ‘B,’ lowered the ratings on its operating subsidiaries, and is keeping the group on CreditWatch with negative implications.

S&P’s decision follows Trenwick’s announcement last week that it incurred a net loss of $136.9 million in the third quarter (See IJ Website Nov. 8), and had been hit with $90.7 million of reserve additions and $54.5 million of deferred “tax writedowns.”

“With the reserve additions there is a diminished likelihood of sufficient dividends from the operating companies and, as a result, more uncertainty surrounding Trenwick’s ability to meet its 2003 debt repayment and debt service requirements,” noted credit analyst Karole Dill Barkley. “Considerable uncertainty remains about whether banks will renew letters of credit that allow continued underwriting at Lloyds, as well as the potential for additional reserve development from the fourth-quarter 2002 reserve study.”

S&P explained that under Trenwick’s credit agreements its lenders are expected to decide by Nov. 22 whether to renew and extend the group’s $230 million in letters of credit. “If the banks elect not to renew, or to demand cash collateral, there is substantial doubt as to Trenwick’s ability to continue underwriting at Lloyds or continue as an ongoing concern,” said S&P. “Management has disclosed that Trenwick and/or one or more of its subsidiaries may be forced to seek protection from creditors.”

S&P said it would continue to monitor the situation and would closely follow developments over the next few weeks. It will again review the ratings after the 22nd of November.

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