S&P Revises Fortis’ Outlook to Positive; Belgian Ins. Unit Remains Negative

May 1, 2009

Standard & Poor’s Ratings Services has revised its rating implications to positive from developing on the CreditWatch placement of its ‘BB’ long-term counterparty credit ratings and ‘B’ short-term counterparty credit ratings on Fortis SA/NV and Fortis N.V. (together, “Fortis”), the two holding companies of the Fortis group.

S&P said the “positive implications reflect our view of the upside potential for Fortis arising from the deal with the Belgian government and BNP Paribas, which was approved in Fortis shareholder meetings in Belgium (on April 28, 2009) and the Netherlands (on April 29, 2009). This agreement is likely in our view to alleviate some of the uncertainties relating to Fortis’ structure and legal risks, its liquidity and capital positions, and the risks relating to its noninsurance assets and liabilities.

However, S&P also said that it is maintaining the ‘A’ long-term counterparty credit and financial strength ratings on Fortis Insurance Belgium (FIB) on CreditWatch with negative implications.

“We originally placed the ratings on CreditWatch (with positive implications) on Oct. 6, 2008. The negative implications on FIB indicate that, as we review FIB’s situation, we might decide to lower our assessment of its stand-alone credit profile, particularly given the difficult operating environment,” S&P explained. “In our opinion, the approval of the new agreement is likely to add strength to FIB, as it may solidify the bancassurance agreement with Fortis Bank SA/NV and add good diversification to FIB’s ownership structure.

“Our opinion, however, is that these strengths are unlikely to result in an upgrade of FIB, owing to the limitation of the Fortis Bank ownership to 25 percent, and to the execution risk attached to this new agreement.

In a related action, S&P said it has “maintained the ‘BB’ long-term junior subordinated ratings on the three hybrid instruments issued by Fortis Hybrid Financing on CreditWatch with developing implications. The developing implications reflect the uncertainties regarding the coupon payment on these instruments, which can be affected in certain circumstances by triggers related to the financial situation of Fortis, even if it depends first on payment made by FIB and Fortis Bank SA/NV (FBB; A/Watch Pos/A-1).

“We expect to issue a CreditWatch update on the holding companies within one month. We expect the upside potential for the ratings on the holding companies to be up to four notches,” indicated credit analyst Lotfi Elbarhdadi.

S&P added that it expects to “resolve or update the CreditWatch on FIB within one month. Our decision will depend on results of our review of the stand-alone credit profile of FIB and our view of the effect of the new Fortis structure on the operating entities’ and holding companies’ overall creditworthiness. If our conclusions are negative, we could downgrade FIB by one or two notches.

To resolve the CreditWatch on the instruments of Fortis Hybrid Financing we need to resolve the CreditWatch on the related parties, including FIB and Fortis SA/NV and Fortis NV, and to clarify how the triggers set in the documentation will continue to apply in the new structure of Fortis following the completion of the transactions as approved by the April 28 and 29 shareholder meetings.”

Source: Standard & Poor’s – www.standardandpoors.com

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