S&P Rates Swiss Re’s Notes ‘A’

April 28, 2006

Standard & Poor’s Ratings Services announced that it has assigned its ‘A’ long-term junior subordinated debt rating to the proposed perpetual, subordinated, fixed-rate, step-up euro-denominated notes to be issued by conduit structure ELM B.V. and secured over the perpetual subordinated step-up loan notes (the loan notes) of global reinsurer Swiss Reinsurance Co. (Swiss Re; AA/Watch Neg/A-1+).

S&P noted: “The performance of the notes is directly linked to the performance of the loan notes. At the same time, the rating was placed on CreditWatch with negative implications, in line with the CreditWatch listing of Swiss Re.” S&P also indicated that it “characterizes the notes as ‘strong’, being at the upper level of its Category 2 (intermediate equity content) classification. This reflects: (1) the notes’ subordinated nature; (2) the notes’ optional and mandatory interest deferability; and (3) the fact that the notes have no final maturity date.”

“The rating on this issue reflects the financial strength of the underlying Swiss Re group, the deeply subordinated nature of the notes, and the discretionary and mandatory interest-deferral features of the issue,” stated S&P credit analyst Simon Marshall.

The rating agency further indicated: “The loan notes rank junior to the group’s existing dated subordinated obligations, existing senior obligations, and existing undated subordinated obligations. The mandatory deferral event of the loan notes is linked to a net income and capital test. Mandatory deferral will be triggered if: (1) Swiss Re’s cumulative consolidated net income for the two half-year periods ending half a year prior is less than zero; (2) Swiss Re’s adjusted shareholders’ equity (on a consolidated basis) has declined by 10 percent or more over the four half-year periods ending half a year prior; and (3) half a year after the half-year period in which conditions (1) and (2) apply, adjusted capital (including three-year mandatory convertibles) has declined by more than 10 percent over the prior five half-year periods.

“Mandatorily deferred interest can only be settled through an alternative coupon-settlement mechanism (ACSM), which includes the proceeds from the issuance or sale of shares of Swiss Re (including three-year mandatory convertibles), subject to a maximum of 2 percent of share capital in each calendar year, or by issuing hybrid securities with terms and conditions at least similar to those of the loan notes, subject to a maximum of 25 percent of the initial issue amount.

“The loan notes also include an optional interest-deferral clause in the event that Swiss Re does not pay a dividend or interest on any class of its shares or parity securities, or does not repurchase or redeem any class of its shares or parity securities. Optionally deferred interest is cumulative, as it is required to be settled by proceeds raised from the ACSM without any limit. The issuer can call the loan notes after 10 years (and at any coupon date thereafter), in which event ELM B.V. will also call the notes.”

S&P said it would “consider the loan notes as part of Swiss Re’s total adjusted capital up to the normal tolerance of 15 percent.” It also noted they “are being issued as part of the financing package for the acquisition of GE Insurance Solutions, which includes GE Insurance Solutions Corp. (BBB+/Watch Pos/–), Employers Reinsurance Corp. (A/Watch Pos/–), and other affiliates, and are qualifying as upper additional capital for Swiss regulatory purposes. The notes are being issued by ELM B.V. for the purpose of financing a step-up subordinated perpetual loan to be made to Swiss Re. The full amount of the issue is yet to be confirmed. The loan will be at the sole economic risk and to the sole benefit of the noteholders.

“The credit risk of the notes is linked to Swiss Re. The three-notch differential between the counterparty credit rating on Swiss Re and the rating assigned to the notes reflects their subordinated nature and interest-deferral features. The terms and conditions of the notes correspond to the terms and conditions of Swiss Re’s obligations to ELM B.V. under the loan notes.

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