A.M. Best Assigns Debt Rating to Crum & Forster Holdings Corp.'s Senior Notes.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--May 20, 2003 A.M. Best Co. has assigned a prospective "bb+" senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. rating to Crum & Forster Holdings Corp.'s (New Jersey) USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 200 million senior notes maturing in 2013. Crum & Forster Holdings Corp. is a downstream holding company of Fairfax Financial Holdings Fairfax Financial Holdings Limited TSX: FFH.SV NYSE: FFH is a Toronto, Ontario based financial services holding company which, through its subsidiaries, is engaged in property, casualty and life insurance and reinsurance, investment management and insurance claims Limited (Ontario) and immediate parent to the Crum & Forster Insurance Group. All of the debt ratings of Fairfax Financial and its subsidiaries maintain a negative outlook. The notes are being initially issued by Crum & Forster Funding Corp., a Delaware corporation A Delaware corporation is a corporation chartered in the U.S. state of Delaware. Delaware is well known as a corporate haven, and thus, over 50% of US publicly-traded corporations and 58% of the Fortune 500 companies are incorporated in the state. and special purpose entity, and the funds held in escrow escrow Instrument, such as a deed, money, or property, that constitutes evidence of obligations between two or more parties and is held by a third party. It is delivered by the third party only upon fulfillment of some condition. until Fairfax Financial's current bank facility is renegotiated. Upon successful renegotiation of the credit facility, the notes will be assumed by Crum & Forster Holdings Corp. Upon release from escrow, partial proceeds covering interest expense on this security for the next two years will be maintained at Crum & Forster Holdings, while A.M. Best expects the remaining cash will be upstreamed to Fairfax Financial to retire 2003 debt maturities or other debt maturities or be maintained as cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has at that level. If the renegotiation of the credit facility is not successful, the notes will be redeemed by Crum & Forster Funding at a price equal to 100% of the issue amount plus accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. . Proceeds from this security, in addition to proceeds expected from the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. of Northbridge, should result in management reaching its stated objective of maintaining CAD 500 million of cash and marketable securities at Fairfax Financial. Reaching this goal will allow sufficient funds to cover all holding company expenses through 2004. This increase in liquidity comes at a critical time as Fairfax Financial simultaneously negotiates a new bank credit facility, which is expected to be a reduction from the current bank facility further limiting Fairfax Financial's alternative sources. Alternatively, an improved tangible liquidity profile will stave off stave n. 1. A narrow strip of wood forming part of the sides of a barrel, tub, or similar structure. 2. A rung of a ladder or chair. 3. A staff or cudgel. 4. Music See staff1. cash flow concerns for the next 18 months. Holding company liquidity and financial flexibility concerns underlie the negative outlook. The issuance of this debt is noteworthy as it affirms Fairfax Financial's ability to access public capital markets, a source of capital A.M. Best had believed unavailable. While A.M. Best understands that Fairfax Financial's immediate concern is liquidity, it is expected that leverage will begin to gradually reduce over the next two years, partially from improvement in earnings and resultant equity building. After a comprehensive review of each of Fairfax Financial's insurance and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. subsidiaries, A.M. Best affirmed the Excellent financial strength ratings of Crum & Forster Insurance Group on March 14, 2003, but maintained a negative outlook. The well-regarded management team running Crum & Forster has progressed in its turn-around strategy as evidenced by Canadian GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). combined ratios of 103.3% in 2002 and 99.8% in the first quarter of 2003. The operating companies' capital level is commensurate with their financial strength rating, and A.M. Best believes Fairfax Financial's management will ensure it remains so. The negative outlook is maintained as additional time is needed to comfortably prove sustainable good earnings and reserve adequacy. A.M. Best believes that Fairfax Financial will begin upstreaming dividends from Crum & Forster Insurance Group when these subsidiaries achieve a capacity to provide these dividends--regardless of which Fairfax Financial entities are debt obligors. Therefore, the newly issued debt at the Crum & Forster level is not expected to materially diminish the earnings and surplus building momentum of the operating companies operating company A business that engages in transactions with outsiders. in 2002. Fairfax Financial has proven its explicit and implicit support of its subsidiaries' liabilities, and A.M. Best expects this support to continue. However, the Crum & Forster investors have first call on the earnings of the Crum & Forster Insurance Group, and accordingly, the debt has been notched from Crum & Forster Insurance Group's financial strength rating and incorporates the financial concerns A.M. Best has expressed regarding the Fairfax Financial enterprise. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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