Ratings Roundup: Montpelier Re, Arab Re, Cyrus Re (debt)

November 16, 2007

Fitch Ratings today upgraded the senior debt rating of Montpelier Re Holdings Ltd. (NYSE: MRH) to ‘BBB’ from ‘BBB-‘. At the same time, Fitch upgraded MRH’s long-term Issuer Default Rating (IDR) to ‘BBB+’ from ‘BBB’. Fitch also upgraded the Insurer Financial Strength (IFS) rating of Montpelier Reinsurance Ltd. (Montpelier Re) to ‘A-‘ from ‘BBB+’. Additionally, Fitch assigned a ‘BBB-‘ rating to the company’s 8.55 percent trust preferred securities due 2036. The outlook for all the ratings is stable. “The rating actions reflect Fitch’s heightened comfort with Montpelier Re’s risk management practices and risk profile,” said the bulletin. “The ratings revision also reflects Fitch’s review of Montpelier Re’s stochastic modeling process, the results of which align the company more closely with its ‘A-‘ rated peers.”

A.M. Best Co. has affirmed the financial strength rating of B+ (Good) and the issuer credit rating (ICR) of “bbb-” of Lebanon’s Arab Reinsurance Company S.A.L. (Arab Re) with a stable outlook. “The ratings reflect Arab Re’s strong current and prospective risk-adjusted capitalization and very good operating performance, offset by its limited, although improving market visibility,” Best explained.

Standard & Poor’s Ratings Services said that it assigned the following bank loan ratings to Cyrus Reinsurance II Ltd.’s (Cyrus II) three proposed bank loans totaling $105 million:
— Senior secured term loan (senior debt, $65 million, modeled probability of default of 70 basis points (bps), cushion of 15 percent) rated ‘BB+’,
— Senior subordinated secured term loan (senior subordinated debt, $20 million, 235 bps, 40 percent) rated ‘B’, and
— Junior subordinated secured term loan (junior subordinated debt, $20 million, 661 bps, 18 percent) rated ‘B-‘.
“The different ratings reflect differences in the modeled probability of the tranches attaching and the application of a cushion to consider the possibility of modeling error and other risks,” explained S&P credit analyst Mark Davidson. “The cushion is a critical element to our rating process for sidecars and other forms of indemnified property catastrophe risk,” he added.

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