S&P Lowers Kanawha Ratings to ‘BBB;’ CreditWatch Positive

August 8, 2007

Standard & Poor’s Ratings Services has lowered its counterparty credit and financial strength ratings on Kanawha Insurance Co. to ‘BBB’ from ‘BBB+’; however, at the same time S&P revised the Company’s CreditWatch status to positive from developing.

“The ratings were lowered because, given parent company KMG America Corp.’s earnings performance during the first half of 2007, we believe that Kanawha’s ongoing earnings and competitive profile are more consistent with a ‘BBB’ rating,” explained S&P credit analyst Neal Freedman.

S&P noted that despite “KMG’s second-quarter 2007 pretax operating earnings of about $1.7 million” – an improvement over its first-quarter loss of $4.3 million (including a $6 million charge reflecting increased claims and reserves on the company’s stop loss business) – “earnings for full-year 2007 are expected to be lower than 2006.”

“The positive CreditWatch reflects KMG’s retention of Keefe, Bruyette, and Woods Inc. to explore strategic alternatives, including the possible sale of the company to a higher rated firm.,” said S&P.

The rating agency said it would “continue to communicate with company management and monitor Kanawha’s financial performance as KMG continues to explore various strategic alternatives. If KMG enters into an agreement to be sold or merged into a higher rated entity, the ratings will remain on CreditWatch with positive implications until such a transaction is completed, at which time the ratings would likely be raised. If KMG remains independent, the ratings could be affirmed with a negative outlook, reflecting the increased uncertainty regarding the company’s competitive profile.”

Source: S&P

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