S&P Revises Cunningham Lindsey Outlook to Stable; Affirms ‘B-‘ Rating

March 12, 2008

Standard & Poor’s Ratings Services has revised its outlook on Cunningham Lindsey Group Inc. (LIN) to stable from negative. S&P also affirmed its ‘B-‘ counterparty credit rating on LIN. The actions coincide with S&P’s revision of its outlook on LIN’s parent Fairfax Financial (See International section).
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“The rating on LIN reflects its operations’ weak earnings and dependency on weather-related claims activity for certain branches,” explained S&P credit analyst Damien Magarelli. “It is also based on LIN’s weak stand-alone liquidity, extremely high financial leverage, and low interest coverage.”

However, Magarelli indicated that “LIN’s diversified global claims services network and track record of financial support from Fairfax Financial Holdings Ltd. and prospective additional financial flexibility expected from Stone Point,” should be considered as offsetting positive factors.

S&P noted: “On Dec. 31, 2007, Fairfax and LIN closed the transaction pursuant to an agreement with Trident IV L.P., a private equity fund managed by Stone Point, and certain affiliated entities. Under this transaction, a new holding company domiciled in the Cayman Islands, which owns the operating businesses of LIN, has been established. Fairfax, through 100 percent ownership of LIN, owns 45 percent of the holding company after contributing a net amount of C$12.4 million [US$12.54 million], and Stone Point owns 51 percent with its C$88 million [$88.94 million] capital contribution. The senior management of LIN owns the remaining 4 percent. Proceeds from this transaction were used to repay US$72.8 million in an unsecured term loan facility due in March 2008 and for working capital.

“LIN’s C$125 [US$126.365] unsecured Series B debentures due in June 16, 2008, remain outstanding. However, if refinancing is not available by June 16, 2008, Stone Point and Fairfax are expected to pay the existing debt off at 51 percent and 49 percent, respectively. This is the overwhelming reason for the stable outlook, as LIN’s ability to pay off the debt in June 2008 relies heavily on support from the new holding company’s majority owners, Stone Point and Fairfax.”

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

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