Standard & Poor’s Ratings Services has placed its ratings on Prospect Medical Holdings Inc. including the ‘B-‘ counterparty credit rating, on CreditWatch with negative implications. “We took this rating action as a result of a contractual performance dispute that has arisen between the company and certain members of its lender group,” explained credit analyst Joseph Marinucci. Specifically, Prospect Medical has received notices of nonmonetary default from its administrative agent and certain lenders for the nondivestiture of certain assets by a specified date. The company has strongly disputed the administrative agent’s characterization of the matter, and the parties have engaged in ongoing discussions seeking its resolution. As a result of this development, we believe Prospect Medical’s risk of covenant breach has increased. This could result in the immediate termination of its $7.25 million revolver and cause its credit agreement loan balance (about $135.5 million as of Dec. 31, 2008) to become payable immediately. If the lending group does not elect to waive its enforcement rights, this would create a significant liquidity problem for the company. It would also hurt the company’s ability to operate and continue as a going concern. Marinucci added: “We believe this matter has the potential to be a significant operational distraction that could ultimately impair the company’s financial and business profile, particularly if this dispute is not favorably resolved in the near term,” Mr.. We intend to conduct follow-up discussions with Prospect Medical’s management team in the second quarter of 2009. Thereafter, we could affirm the rating or lower it. We also could assign either a stable or negative outlook.”
A.M. Best Co. has placed the financial strength rating of B+ (Good) and issuer credit rating of “aa-” of Arizona-based Town and Country Mutual Insurance Company under review with negative implications. “These rating actions are due in part to the continuation of underwriting losses in 2009, following a 40.5 percent surplus decline in 2008,” Best explained. “Town and Country experienced frequent and severe storm losses from wind, hail and tornados in 2008, resulting in a $1.2 million underwriting loss. Furthermore, a severe ice storm in January 2009 also resulted in significant losses. The ratings will remain under review pending further discussions with management regarding its capital management strategies, including the potential purchase of additional reinsurance, which is expected to be completed before the end of April 2009.”
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