Standard & Poor’s Ratings Services announced that it has assigned its preliminary “BBB” senior debt, “BBB-” subordinated debt, “BB+” junior subordinated, and “BB+” preferred stock ratings to Endurance Specialty Holdings Ltd.’s (ENH) recently filed universal shelf registration.
“The ratings reflect the company’s strong competitive position, which is supported by a diversified business platform,” explained S&P credit analyst Damien Magarelli. In addition, ENH maintains strong capital adequacy and strong operating performance. “Offsetting these positive factors are concerns about exposure to catastrophes and ENH being a relatively new operation and management not having been tested through difficult market cycles while at the company,” he added.
S&P noted: “ENH has expanded its product offering via new transactions and it remains unclear if these new transactions will yield strong earnings. ENH has strong financial flexibility and debt leverage, and interest coverage levels are well above that required for the rating. Also, ENH’s diversified platform and strong earnings support nonstandard notching. ENH is expected to maintain debt leverage of less than 20 percent and interest coverage of more than 10x in support of nonstandard notching.
“ENH had a debt-to-capital ratio of 17.7 percent in 2004 and interest coverage significantly more than the level required for the rating at 35x. The outlook is based on Standard & Poor’s expectation that ENH will maintain strong earnings in 2006. Standard & Poor’s also expects that the group’s capital adequacy ratio will remain strong at more than 155 percent. In addition, the company is expected to exhibit the risk-management skills and underwriting discipline to control the volume and profitability of business.
“ENH is expected to maintain debt leverage at less than 20 percent and interest coverage of more than 10x in support of nonstandard notching. If ENH maintains strong earnings in 2006, the rating could be raised. In contrast, if hurricane loss estimates are revised significantly upward, if capital expectations are not met, or if strong earnings are not maintained, the outlook could be revised to stable.”
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