S&P Lowers Cassiopea Re’s Ratings to ‘BBB+; Withdrawn at Company Request

January 16, 2006

Standard & Poor’s Ratings Services announced that it has lowered its long-term counterparty credit and insurer financial strength ratings on Luxembourg-based reinsurer Casiopea Re S.A. to “BBB+” from “A-,” and removed them from CreditWatch, where they had been placed with negative implications on Oct. 31, 2005. The outlook is stable.

S&P also announced that it has withdrawn the ratings “at the request of Casiopea Re’s management. Consequently, the company is no longer subject to surveillance by Standard & Poor’s.”

The rating agency explained that “Casiopea Re is the wholly owned reinsurance affiliate of Spanish telecommunications provider Telefónica S.A. (Telefónica; BBB+/Stable/A-2). The downgrade and removal from CreditWatch reflect the same rating actions taken on Jan. 11, 2006, on Telefónica. This followed Telefónica’s declaration that its £17.7 billion [$31.4 billion] bid for 02 PLC, the 100 percent owner of U.K.-based mobile operator mm02 PLC, is now unconditional with respect to acceptances from 02’s shareholders.

“In addition, the takeover received conditional regulatory approval from the EU on Jan. 10, 2006. The downgrade of Telefónica, which was only pending completion of the transaction, reflects the aggressive nature of the acquisition, which will result in significantly higher leverage than originally expected and involves material integration risk related to 02 (see “Research Update: Telefónica Downgraded To ‘BBB+’ And Off Watch On 02 Offer Clearance; Outlook Stable” published on Jan. 11, 2006, on RatingsDirect).”

S&P added that the “ratings on Casiopea Re were based on the company’s status as Telefónica’s captive reinsurer under Standard & Poor’s ratings criteria and, as such, were driven by the ratings on the parent.”

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