Kingsway to Sell Jevco; Best Says Lincoln Still Weighs

January 27, 2010

Toronto-based Kingsway Financial Services announced today that it has entered into a definitive purchase agreement with The Westaim Corporation to sell “all of the issued and outstanding shares of Jevco Insurance Company to Westaim for an aggregate purchase price of approximately 94.5 percent of the book value of Jevco as at December 31, 2009, subject to adjustments,” in an all cash transaction. Jevco is Kingsway’s only operating Canadian company.

A.M. Best indicated that, while the deal would somewhat relieve Kingsway’s financial constraints, it would not affect the current status of the company’s ratings, which are “under review with negative implications.”

Kingsway noted that the transaction is “subject to the satisfaction of certain standard closing conditions, including receipt of the approval of the Minister of Finance (Canada),” as well as insurance regulatory approvals

Kingsway will also receive a dividend of up to CAD$40 million [US$37.53 million] from Jevco. The approval of Westaim shareholders will also be required in connection with associated financing activities. Completion of the transaction is not conditional on financing.

The bulletin specified that, if the deal, is concluded successfully, Kingsway plans to “immediately purchase sufficient Company debt to ensure it continues to satisfy all financial covenants contained in bond agreements to which the Company and its affiliates are a party.

“Conditional debt repurchase agreements have been executed in respect of approximately US$47 million of the Company’s debt to ensure the timely completion of the debt purchase transactions.”

Best noted that the “ratings of Kingsway, several U.S. subsidiaries and JEVCO were downgraded and kept under review with negative implications in November 2009.

“This was due to continued poor operating performance, a decline in business profile and uncertainty surrounding Kingsway’s disposition of Lincoln General Insurance Company,” which is headquartered in York, Pennsylvania.

“Although the successful sale of JEVCO would provide Kingsway with much needed financial flexibility, a ruling by the Pennsylvania court unwinding the disposition of Lincoln would continue to expose Kingsway to the financially distressed insurer,” Best explained. “Additionally, the ratings for JEVCO are predicated on its affiliation with Kingsway and the execution risk involved in the transaction.”

Sources: Kingsway Financial – https://www.kingsway-financial.com and A.M. Best – www.ambest.com

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