Fitch may cut Safeco, Liberty Mutual

Fitch Ratings said it placed on Rating Watch negative Safeco Corp.'s issuer default rating of A+, 4 7/8% senior unsecured notes due 2010 rated A and 7¼% senior unsecured notes due 2012 rated A.

The agency also placed on watch Liberty Mutual Group, Inc.'s issuer default rating of BBB+, short-term issuer default rating of F2, junior subordinated rating of BBB- and notes rating of BBB.

The watch follows Liberty Mutual's offer to purchase all outstanding common shares of Safeco for $6.2 billion in cash, or at a 51% premium over Tuesday's closing stock price.

Fitch said the watch reflects uncertainty about the effect of the deal's financing on the capitalization of the combined entity's insurance subsidiaries. The action also reflects concerns about increases in the combined entity's exposure to intangible assets and heightened underwriting leverage.

The agency said it would also consider operating and integration risks associated with the deal.

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