Standard & Poor’s Ratings Services announced that it has “revised its senior secured debt ratings on Atlantic & Western Re Ltd.’s Class A notes to ‘D’ from ‘BB’ and Class B notes to ‘D’ from ‘B’.” S&P also revised its senior secured debt rating on Atlantic & Western Re II Ltd.’s Class B notes to ‘CCC’ from ‘BB+’.
S&P explained that it had revised the ratings due to “PXRE Reinsurance Ltd.’s (PXRE), the ceding insurer in the transaction, failure to make the quarterly premium payment due on Feb. 8, 2007. The premium payment is needed to make the quarterly interest payment due to noteholders.”
The rating agency also noted that “the 8-K report filed by PXRE Group Ltd. on Feb. 9, 2007, stated that the Board of Directors concluded it was unlikely that PXRE Group Ltd. would ultimately pursue a strategic alternative that would allow it to utilize the coverage available under the Reinsurance Agreement in light of the extremely high attachment point under the Reinsurance Agreement.
“Based on the 8-K information filed on Feb. 12, 2007, by PXRE Group Ltd., management has indicated they expect to make the Feb. 8 premium payment on May 8, 2007, as well as the scheduled payment due on May 8 and the early termination event premium. The principal needed to redeem the notes is held in a collateral account. It is expected that the outstanding principal amount will be redeemed in full upon the early amortization.”
S&P further explained that although it “recognizes management’s intention to make the payments required under the reinsurance agreement, our ratings also address the timeliness of the payments. Because the Feb. 8 payment will not be made until after the grace period allowed under the transaction documents, the issuer is in default of its obligations.
S&P also indicated that the “revision on Atlantic & Western Re II Ltd.’s Class B notes to ‘CCC’ was based on” its “interpretation of management’s intentions as set forth in the 8-K filed Feb. 9. It was disclosed that PXRE Group Ltd.’s board of directors may pursue strategic alternatives that do not involve significant catastrophe exposures. If they do not, then it is likely that these notes would be redeemed before the scheduled maturity. To effect an early redemption, PXRE would be expected to not make a required premium payment, which would result in a default on the notes.”
Finally, S&P stressed that “this rating action does not imply that the noteholders are at greater risk of loss. Rather the rating action is meant to convey that the notes are more likely to amortize early and that a default must occur to achieve this result.”
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