Tag Archives: finance

Standard & Poor’s downgrades Sagicor Life Inc

I tend to bang on about these rating agency downgrades, but they are important.

For those of you not familiar with these companies, their essence can be distilled thus:  ratings agencies are arbiters of creditworthiness.

In other words, agencies like Moody’s, Standard & Poor’s and Fitch bestow upon companies and countries¬† grades that indicate the likelihood that the rated entity will be able to pay its debts.

These ratings range from the gold standard – triple-A – which suggests the likelihood of default is minute, to Cs, which suggest the company or country poses a substantial risk to its creditors. The lowest grade – D – is reserved for those entities that have actually failed to pay their debts.

On that – last week, S&P lowered its rating Sagicor Life to BBB from BBB+, which is a one-notch downgrade. Here is the statement, highlighting and bracketed commentary is my own:

S&P: Sagicor Life Inc. Rating Downgraded To ‘BBB’ From ‘BBB+’; Outlook Stable

* Sagicor’s financial flexibility and liquidity could be under pressure if Jamaica’s economic environment continues to deteriorate.
* We are lowering our ratings on Sagicor, including lowering the long-term counterparty credit and financial strength ratings on the company to ‘BBB’ from ‘BBB+’.
* The outlook is stable.

MEXICO CITY July 24, 2009–Standard & Poor’s Ratings Services lowered its long-term counterparty credit and financial strength ratings on Sagicor Life Inc. to ‘BBB’ from ‘BBB+’. The outlook is stable.

At the same time, we lowered to ‘BBB-‘ from ‘BBB’ our rating on the long-term senior unsecured debt rating on the $150 million senior unsecured obligations with up to 10-year maturities issued by Sagicor Finance Ltd., a Cayman Islands-based subsidiary of Barbados-based Sagicor Financial Corp. Sagicor and Sagicor Financial Corp. irrevocably, unconditionally, and jointly guarantee these notes.

“The rating action reflects our opinion that a continued worsening in Jamaica’s economic conditions compromises Sagicor’s financial flexibility and liquidity,” said Standard & Poor’s credit analyst Alfonso J. Novelo. “Also, profits could be pressured as a result of poor conditions in the financial markets and the likelihood of a prolonged period of weaker-than-expected economic conditions in the main countries where the insurance company operates, in particular in Jamaica, where Sagicor has placed 27% of its financial investments.”

On June 10, 2009, we lowered our long-term foreign currency sovereign credit rating on Barbados to ‘BBB’ from ‘BBB+’; in addition, our rating on the Republic of Trinidad and Tobago, another one of the countries where Sagicor has a leading position, is on CreditWatch with negative implications. The U.S., the U.K., and other countries of operation are also facing economic challenges.

[In S&P speak, any country or company on “CreditWatch with negative implications” is likely to be downgraded in the very near future]

The counterparty credit and financial strength ratings reflect Sagicor’s strong operating performance, conservative underwriting discipline, good profitability, and strong capitalization. The ratings also reflect the company’s dominant market position as the leading life insurer in the Caribbean and its increasing geographic diversification.

These positive factors are partially offset by a relatively high concentration in revenues and investments in Jamaica, and the aggressive inorganic growth strategy the group has implemented in the past three years, somewhat mitigated by Sagicor’s long and successful track record in mergers and acquisitions.

The rating on the senior unsecured obligations reflects the subordination of the notes to obligations owed to policyholders and creditors of Sagicor’s subsidiaries.

The stable outlook incorporates our expectation that Sagicor will maintain extremely strong capitalization and good profits, even under the more challenging economic environment that the different countries where the group carries out business are experiencing.

We could lower the ratings if capitalization decreases dramatically, even if it remains at more than the 175% target, or if profits deteriorate substantially. Furthermore, ratings will be pressured in the case of negative rating actions on Barbados or Jamaica and the degree of a downgrade of Trinidad and Tobago.


S&P says may cut ratings on FCB and Republic Bank

S&P, which said today it was considering downgrading T&T’s sovereign credit rating, is also scrutinising the ratings of both First Citizens Bank and Republic Bank due to the fallout from the CL Financial bailout.

Here are the statements, any emphasis/explanations mine:

S&P: First Citizens Bank Ltd. ‘BBB+/A-2’ Rating Put On CreditWatch Negative

[“CreditWatch Negative” means that a downgrade is likely within the next three months, pending further information/review]

[A triple-B rating is borderline investment grade; the institution is considered ‘satisfactory’]

MEXICO CITY Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘BBB+/A-2’ counterparty credit rating on First Citizens Bank Ltd. on CreditWatch with negative implications.

Standard & Poor’s also said that it placed its ‘BBB+’ ratings on the $100 million bonds from First Citizens and First Citizens (St. Lucia) Ltd. on Credit Watch negative.

The CreditWatch placement follows Trinidad and Tobago’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of CL Financial Group (CLFG), a large Trinidadian financial conglomerate. According to the central bank, CLFG’s financial condition has deteriorated because of related-party transactions, high-risk investments, and high leveraging of the group’s assets. The central bank has announced that it will take control of CLFG’s flagship bank, Clico Investment Bank (CIB), transfer its assets and deposits liabilities to First Citizens Bank (wholly owned by the government), and revoke CIB’s banking license. The government has announced that CLFG will divest assets, including its shares in Republic Bank Ltd. (a 55% share) and Methanol Holdings Trinidad Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We expect to resolve the CreditWatch status of the ratings when there is further clarification of First Citizens Bank participation in the bail out process and the impact that this will have on the bank’s overall creditworthiness,” said Standard & Poor’s credit analyst Angelica Bala.

S&P: Republic Bank Ltd. ‘BBB/A-2’ Rating Put On CreditWatch Developing

MEXICO CITY Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘BBB/A-2’ counterparty credit rating on Republic Bank Ltd. on CreditWatch with developing implications.

The CreditWatch placement follows Trinidad and Tobago’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of the CL Financial Group (CLFG), a large Trinidadian financial conglomerate that owns 55% of Republic Bank Shares. The government has announced that CLFG will divest assets, including its 55% share in Republic Bank Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We expect to resolve the CreditWatch status of the ratings when there is further information on how the transaction is going to be done and the implications to Republic Bank, currently the largest bank in the country,” noted Standard & Poor’s credit analyst Angelica Bala.


CL Financial bailout threatens T&T’s credit rating

From credit rating agency Standard & Poor’s on Tuesday (emphasis and in-line explanations mine):

NEW YORK, Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘A/A-1’ foreign-currency and ‘A+/A-1’ local-currency sovereign credit ratings on the Republic of Trinidad and Tobago on CreditWatch with negative implications.

[Credit watch with negative implications means the ratings agency is considering downgrading T&T’s existing credit rating; any subsequent rating action is normally taken within three months. A sovereign’s credit rating is important because it determines (among other things) how much that country will pay to borrow in the international debt markets. Essentially, a credit rating is an assessment of a country’s creditworthiness; it is an indicator of that country’s willingness and ability to repay its debts. As a benchmark, S&P rates the United States as triple-A – the highest possible rating – while Jamaica is currently rated B]

“The CreditWatch placement follows the government’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of the CL Financial Group (CLFG), a large Trinidadian financial conglomerate,” explained Standard & Poor’s credit analyst Roberto Sifon-Arevalo. According to the central bank, CLFG’s financial condition has deteriorated because of related-party transactions, high-risk investments, and high leveraging of the group’s assets. The central bank has announced that it will take control of CLFG’s flagship bank, Clico Investment Bank (CIB), transfer its assets and deposits liabilities to wholly government-owned First Citizens Bank, and revoke CIB’s banking license. CLFG has also disclosed that its insurance companies–CLICO Insurance Co. Ltd. and British American Insurance Co. Ltd.–have sizeable statutory fund deficits. The government has announced that CLFG will divest assets, including its 55% share in Republic Bank Ltd. and share in Methanol Holdings Trinidad Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We will resolve the CreditWatch status of the ratings once we can estimate the potential fiscal cost to the government, the broader damage to its financial system, and any impairment to the island’s medium-term growth prospects,” Mr. Sifon-Arevalo added. Trinidad and Tobago enters this CLFG intervention with general government assets exceeding debt by 4.5% of GDP in 2008, a substantial improvement from a net debt position of 20% in 2003. The country’s external position has also strengthened, with net external liabilities of 6% of current account receipts in 2008, down from 134% in 2003. The government’s saving of part of its gas windfall in its Heritage and Stabilization Fund during this period accounts for its fiscal buffer and the country’s improved international investment position.

Further reading:
Sovereign ratings in the Caribbean – An S&P report from May 2007