Standard & Poor’s Ratings Services announced that it has assigned its “BBB-” rating to Kingsway ROC GP’s C$125 million (U.S.$100 million) 10-year senior unsecured debt, unconditionally guaranteed by Kingsway Financial Services Inc. (BBB-/Stable/) and Kingsway America Inc.
The notes will be “placed into the Kingsway Note Trust as referenced in the Kingsway Linked Return of Capital Trust, preliminary prospectus dated May 12, 2005,” S&P noted. “Kingsway ROC GP is a newly created general partnership organized under the laws of the State of Delaware and is a wholly-owned indirect subsidiary of Kingsway Financial Services Inc. (Kingsway).”
The rating agency indicated that the “ratings on Toronto-based Kingsway, the guarantor, reflect its strong business position in nonstandard auto, trucking, and motorcycle insurance, disciplined underwriting, and strong distribution channels. The funds are to be used to pay down some of the existing bank facilities, and the balance will be injected into some of the operating companies.
“Kingsway’s financial results for 2004 and first-quarter 2005 were favorable, due to the increase in investment income, improved underwriting gains, and modest capital gains that were generated by the company’s investment portfolio. As Kingsway is a holding company, the ratings on it reflect the structural subordination of its debt and obligations to those of its operating companies, which notionally would hold a higher rating.”
S&P credit analyst Kevin Maher stated: “We believe that, including the new debt issue, Kingsway’s financial flexibility has a small cushion before it reaches the limit for the current ratings band. We consider the C$125 million issue to slightly increase Kingsway’s debt leverage, although not significantly.”
S&P said the “stable outlook reflects Kingsway’s leading position in the nonstandard auto and motorcycle insurance markets, the company’s good operating performance, and the slowly improving industry trends. Prospectively, Standard & Poor’s expects Kingsway to generate organic growth of 8 to 10 percent per year with more growth coming from the U.S. than Canada.”
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