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12 Apr 2007
Moody's Assigns Ba1 Rating to NOVAE Group Plc's Proposed Subordinated Debt Issue
London, 12 April 2007 -- Moody's Investors Service announced today that it has assigned a Ba1,
stable outlook, subordinated debt rating to Novae Group plc's
(Novae) proposed subordinated notes. The net proceeds of the issue
of the bonds will be used by Novae to refinance existing debt and for
general corporate purposes. The rating agency said that the Ba1
rating was based on the expectation that there would be no material difference
between current and final documentation in relation to the notes.
The proposed notes will constitute Lower Tier 2 capital and will rank
at least pari passu with previously issued Lower Tier 2 capital.
Moody's said that the Ba1 stable outlook holding company subordinated
debt rating reflected a) the A3, positive outlook insurance financial
strength rating (IFSR) on Lloyd's syndicate 2007, which is managed
and primarily capitalised by Novae b) the degree of benefit that Moody's
believes syndicate 2007 policyholders derive from the Lloyd's Central
Fund that does not extend to the Novae holding company c) the impact of
policyholder regulatory protection and the structurally subordinated position
of the holding company, and d) the subordinated position of the
debt-holders to more senior creditors at Novae Group plc.
Taking each element in turn, Moody's said that the A3 IFSR on syndicate
2007 reflected its franchise as a leading syndicate within its core business
areas in the Lloyd's market and its excellent business diversification.
This is offset by the Novae Lloyd's operation's (including run-off
entities) significant gross underwriting leverage and the impact of reserving
adjustments to-date on its ongoing business' profitability,
albeit that these factors are mitigated by the decreasing level of adverse
reserve adjustments and the quality of the reinsurance recoverables.
In terms of rating outlook, Moody's added that the A3 positive
outlook IFSR reflects the degree of benefit that syndicate 2007 receives
from the presence of the Lloyd's Central Fund, the resources of
which are available to syndicate 2007's policyholders but not to Novae's
creditors, with the positive outlook assigned to the overall A3
Financial Strength rating of Lloyd's syndicate 2007 therefore not
extending to the proposed debt issue. The rating agency elaborated
that the rating further factors in the regulatory control at Lloyd's,
which is for the protection of policyholders, and which means that
there can be significant restrictions on the ability to upstream earnings
to the group holding company, especially in times of severe stress.
Moody's added that the notching of holding company debt relative to Novae
syndicate 2007's A3 IFSR was consistent with the practice applied by Moody's
to debt issuance from the holding company of a P&C insurance Group,
which has relatively limited business diversification, notwithstanding
the diversification benefits from the group's UK Commercial Lines
and Liability orientated subsidiary NICL, and whose operating company
has an IFSR in the A range. Finally, the Ba1 subordinated
debt rating reflects the subordinated position of the subordinated creditors
in relation to more senior creditors within the Novae Group.
Moody's continued that it expects that Novae Group plc, including
UK FSA authorised NICL, will maintain its existing levels of gross
underwriting leverage on a group basis and that existing debt will be
redeemed as planned.
Moody's said that the Ba1 subordinated debt rating has a stable
outlook, reflecting Moody's view of the Group's stand-alone
credit quality. The rating agency stated that the ratings could
see positive rating pressure if the combined Novae Lloyd's operation achieves
returns on average equity of at least 5% on its ongoing business,
reinsurance recoverables reduce to less than 150% of equity,
Novae Group plc's gross premiums written and gross reserves as a
% of equity reduce to under 5x and if group financial leverage
were to approach 25%. However, Moody's added
that negative rating pressure would apply if the combined Novae Lloyd's
operation achieves returns on average equity of less than 5% on
its ongoing business, Novae Group plc's gross premiums written
and gross reserves relative to equity remain over 5x and if adjusted group
financial leverage were to be 35% or more.
Moody's most recent rating action on Novae Group plc was on November 10th,
2006, when the rating agency assigned a positive outlook to the
A3 insurance financial strength rating of its principal insurance operation
Lloyd's syndicate 2007.
Novae Group plc, which is listed on the London Stock Exchange,
and which manages and capitalises 94% of Lloyd's syndicate 2007
and owns UK FSA company NICL, reported at YE2006 gross premiums
written of GBP281m and shareholders' equity of GBP240m.
The following rating was assigned, subject to final terms and conditions:
Novae Group plc: Ba1 rating, stable outlook, to the
proposed subordinated notes.
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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