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01 Aug 2002
MOODY'S CONFIRMS ST. PAUL COMPANIES' RATINGS, OUTLOOK STABLE; RATES NEW SENIOR HYBRID SECURITIES A2
Rating confirmation follows company's recently completed recapitalization.
New York, August 01, 2002 -- Moody's Investors Service has confirmed the ratings of The St.
Paul Companies, Inc. Insurance financial strength ratings
for members of the St. Paul Fire & Marine intercompany pool
have been confirmed at Aa3 and the senior unsecured debt rating and rating
for commercial paper of The St. Paul Companies, Inc.
have been confirmed at A2 and Prime-1, respectively.
Concurrently, Moody's rated the senior unsecured notes -
which are part of a hybrid structure - recently issued as part
of the company's recapitalization at A2. All ratings now carry
a stable outlook.
Moody's explained that the rating confirmations mark the conclusion of
a review initiated on May 20, 2002 when St. Paul disclosed
that it intended to more aggressively seek early resolutions of certain
asbestos and environmental related litigation. Shortly thereafter,
St. Paul entered into a definitive agreement to settle ongoing
litigation with Western MacArthur that led to an after-tax charge
to earnings of approximately $380 million, net of expected
reinsurance recoveries. Moody's noted that this charge, together
with the subsequent downward revisions in Platinum Re's valuation,
fell outside the bounds of the rating agency's near-term expectations
for SPC's earnings, capitalization and financial leverage.
According to Moody's, SPC's successful recapitalization through
the recently completed issuance of a combination of common stock and mandatory
conversion debt securities - which resulted in approximately $842
million in net proceeds - was a key consideration in the confirmation
of St. Paul's ratings. Approximately $750 million
of the proceeds from the recently completed offerings are expected to
be contributed to St. Paul Fire & Marine in order to strengthen
the insurance subsidiaries' capitalization, with the remainder staying
at the holding company level. The rating agency noted that the
recapitalization has offset the combined capital impact of the Western
MacArthur claim and Moody's reduced expectations on gains from the Platinum
Re divestiture, which had been significant concerns weighing on
St. Paul's ratings.
In addition to the recapitalization, Moody's noted that its rating
confirmation was supported by the rating agency's expectation that St.
Paul's core earnings performance will continue to strengthen and that
its financial leverage will moderate and debt service coverage measures
will improve over the near-to-intermediate term.
Moody's added that the stable outlook reflect the expectation that St.
Paul will continue to pursue its exit strategy for the reinsurance business
consistent with its stated intentions, and without material adverse
consequences for the company. Moody's continues to view the reinsurance
divestiture as a mildly favorable credit event and as one that should
help to mitigate prospective earnings volatility. Moody's noted,
however, that a significant deviation from these expectations would
lead the rating agency to reconsider its rating opinions on St.
Paul.
The rating agency also explained that it continues to maintain a two-notch
spread between St. Paul Fire and Marine's insurance financial strength
rating and St. Paul Companies' senior debt rating, rather
than a more typical three-notch spread. The basis for this
notching, according to Moody's, is the additional financial
flexibility afforded the holding company by its substantial ownership
position in The John Nuveen Company (NYSE: JNC), a publicly-traded
investment management services firm. Moody's noted that JNC provides
St. Paul with diversification and liquidity alternatives beyond
its core insurance operations.
The following ratings have been confirmed with a stable outlook.
St. Paul Companies, Inc. - senior unsecured
debt at A2, rating for commercial paper at Prime-1,
prospective senior unsecured debt at (P)A2, prospective subordinated
debt at (P)A3, prospective preferred stock at (P)Baa1;
St. Paul Capital Trust I - capital securities at A3;
St. Paul Capital Trust II - prospective capital securities
at (P)A3;
USF&G Corporation - guaranteed senior unsecured debt at A2,
guaranteed subordinated debt at A3;
USF&G Capital Trusts I, II and III - guaranteed capital
securities at A3;
MMI Companies, Inc. - guaranteed subordinated debt
at A3;
MMI Capital Trust I - guaranteed capital preferred securities at
A3;
American Continental Insurance Company - insurance financial strength
at A1;
Athena Assurance Company - insurance financial strength at Aa3;
St. Paul Fire and Marine Insurance Company - insurance financial
strength at Aa3;
St. Paul Medical Liability Insurance Company - insurance
financial strength at Aa3;
St. Paul Reinsurance Company Limited - insurance financial
strength at Aa3;
St. Paul Surplus Lines Insurance Company - insurance financial
strength at Aa3;
United States Fidelity & Guaranty Company - insurance financial
strength at A1;
The St. Paul Companies, Inc (NYSE: SPC) is a Minnesota-base,
publicly traded holding company for several P&C insurance, reinsurance
and asset management subsidiaries. At June 30, 2002,
SPC reported shareholders' equity of just under $5 billion,
total revenues for the first six months of 2002 of $4.6
billion and a year-to-date net loss of $89.7
million
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually repay senior policyholder claims
and obligations. For more information, visit our website
at www.moodys.com/insurance.
New York
Alan Murray
VP - Senior Credit Officer
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ted Collins
Managing Director
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
No Related Data.
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