Standard & Poor's is taking no rating action on Scottish Re Group Ltd (B+/Watch Neg/--) following recent announcements from the company regarding its reduction in aggregate commitments and completion of reinsurance contract. All ratings remain on CreditWatch, where they were placed on 31 July 2006.
On 27 September 2006 Scottish Re announced it had permanently reduced the aggregate commitments under its current bank facility to $42.8m from $200m. The $42.8m represents the face amount of outstanding letters of credit under the facility. In addition, the company announced on 3 October 2006 the completion of a reinsurance contact with an independent third-party that will provide $120m in additional liquidity.
Standard & Poor's believes these are positive steps. However, there still remains concern surrounding Scottish Re's liquidity due to the existing credit facility, which contains restrictions on the ability of Scottish Annuity & Life Insurance (Cayman) and certain of its operating subsidiaries to pay dividends or make loans to the holding company. Although the operating companies may be generating cash flows and have sizeable amounts of current liquid assets, dividends to the holding company are still restricted and thus, repayment of the $115m in convertible notes due on 6 December 2006, remain in jeopardy until such restrictions are lifted. In addition, ongoing liquidity needs continue.
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