On Monday, Fitch Ratings revised the Rating Watch status of Tower Group International, Ltd. to Rating Watch Evolving from Rating Watch Negative following Tower’s announcement of a planned merger with a subsidiary of ACP Re, Ltd. for $172.1 million.
The Evolving Watch reflects that the ratings could go up if the merger closes. Fitch added, however, that ratings could be lowered if the merger does not occur and Tower is unsuccessful in addressing upcoming debt maturity or if additional reserve deficiencies develop.
On Thursday, Jan. 2, Fitch cut the insurer financial strength ratings of Tower’s operating subsidiaries of Tower Group International, Ltd.’s to “B” from “BB,” citing concerns over recurring reserve charges, deteriorating regulatory capital ratios and $150 million of debt that is maturing in September 2014.
At the time, Fitch said all the downgraded ratings would remain on Rating Watch Negative pending the company’s exploration of strategic alternatives.
Tower said Monday that it entered into a merger agreement with ACP Re Ltd. and a wholly-owned subsidiary of ACP Re on Jan. 3, 2014.
This transaction is expected to close in the summer of 2014 and is subject to various regulatory approvals.
ACP Re is a Bermuda-based reinsurance company whose controlling shareholder is a trust established by the founder of AmTrust Financial Services, Inc., National General Holdings Corporation (NGHC) and Maiden Holdings, Ltd.
Fitch noted that the transaction is structured in such a way that Tower will be the surviving corporation as a wholly-owned subsidiary of ACP Re.
Fitch does not rate ACP Re.
Fitch said the merger has the potential to provide sufficient liquidity to reduce near-term holding company obligations and capital concerns at Tower’s operating companies in regard to regulatory capital ratios, adding, however, that little public information is available on ACP Re.
“Tower’s inability to produce accurate financial statements in a timely fashion has led Fitch to consider its level of corporate governance to be ineffective,” Fitch said in both its statements Monday, following the merger announcement, and in the downgrade announcement last week.
Source: Fitch Ratings