Scottish Re confident it can repay convertibles by Dec. 6 deadline

By Caroline Salls

Pittsburgh, Nov. 15 - Scottish Re Group Ltd. said it is confident that it will be able to terminate its credit facility to allow it to repay its convertibles by the Dec. 6 deadline, according to a company news release.

In the release, the company said Standard & Poor's did not give sufficient notice of its intentions to lower the company's counterparty credit rating to CCC from B+ to allow the company to accelerate its efforts to resolve the possibility that it will not repay convertible noteholders who are expected to exercise a put option on Dec. 6, according to a Scottish Re news release.

Scottish Re chief financial officer Dean Miller said the company does not agree with S&P's contention that there has been only slow progress toward Scottish Re's goal of eliminating its credit facility.

"S&P has been advised that there are numerous alternatives currently available to us to resolve the restricted payment issue before the Dec. 6, 2006 deadline."

Miller said the company has reduced the outstanding balance under the bank credit facility to $25.3 million at Nov. 9 from $61.4 million at Aug. 14.

In addition, Miller said $9.8 million of the remaining $25.3 million of the credit facility will be resolved by ING, and another $11.6 million of outstanding letters of credit are in the final stages of being replaced by qualifying reserve credit trusts with clients.

"Our clients are being very supportive of our need to terminate their existing letters of credit, but appropriate time is required to complete this process," Miller said in the release.

"Any remaining letters of credit not replaced by reserve credit trusts can be handled with replacement letters of credit issued by a financial institution. As a final alternative, we can request the clients to draw on the letters of credit, which will require us to provide the bank group with the assets to terminate the letters of credit."

According to the release, S&P said the holding company downgrade reflected a report of tight liquidity in Scottish Re's third-quarter 10-Q, in which the company said it could run out of liquidity as soon as the end of the second quarter of 2007.

"S&P's precipitous action was largely based on questions about the company's ability to repay the convertible notes," Miller said in the release.

"We have been working on various alternatives to solve this issue in the best interests of our clients, the bank group, the company and the parties involved in the strategic process.

"S&P did not provide sufficient warning that a downgrade was imminent, and thus, we were unable to accelerate any of our actions to address their concern over the timing of such actions.

"We are confident that the alternatives described above will enable us to terminate the bank credit facility, thereby eliminating the restricted payment provision and allowing us the ability to repay the $115 million convertible notes when due," Miller added.

Chief executive officer Paul Goldean said in the release, "I wish to assure our shareholders and other stakeholders that we believe the company remains on track to complete the strategic process in the next few weeks."

On Tuesday, S&P lowered the company's counterparty credit rating and kept the rating on CreditWatch with negative implications.

At the same time, S&P said it lowered its counterparty credit and financial strength ratings on Scottish Re's operating companies to B+ from BBB- and kept them on CreditWatch with negative implications.

In addition, S&P said it raised its senior secured debt rating on Ballantyne Re plc's class A-1 notes to AA from BBBand removed the rating from CreditWatch developing.

"We are perplexed by this action given the amount of information provided to S&P regarding our current operations, liquidity and strategic process," Goldean said in the release.

"Since August, we have provided S&P with regular updates on our progress. Most recently, within the past week, we provided S&P with a review of the details regarding our discussions with each of the remaining parties involved in the strategic process.

"We believe the information provided to S&P should have led them to conclude that we are on track to complete the strategic process.

"It is unfortunate that S&P decided to act now rather than allow the remaining parties to complete their confirmatory due diligence, which we expect to occur as early as next week," Goldean added.

Scottish Re is a Hamilton, Bermuda-based reinsurance company.

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