A.M. Best Downgrades Issuer Credit and Debt Ratings of The Phoenix Companies, Inc.; Ratings for Its Subsidiaries Remain Under Review
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the issuer credit rating (ICR) to “b+” from “bb-” and debt rating to “b+” from “bb-” on the outstanding $253 million 7.45% senior unsecured notes of The Phoenix Companies, Inc. (Phoenix) (Hartford, CT) (NYSE: PNX ) . The ratings for Phoenix’s life insurance subsidiaries are unchanged. All ratings remain under review with negative implications.
The downgrades reflect A.M. Best’s current view of Phoenix’s overall financial flexibility given the continuing delays in the filing of its GAAP financials for the third quarter of 2012 and year-end 2012. A.M. Best remains concerned regarding potential multiple material weaknesses in the company’s internal controls over financial reporting and disclosure controls and procedures to be reported in its 2012 Form 10-K. At this juncture, A.M. Best believes that widening the gap between the lead operating company’s (Phoenix Life Insurance Company) ICR of “bbb-” and the holding company’s ICR to four notches is warranted. Per A.M. Best’s rating criteria for insurance holding companies, standard notching for a “bbb-” operating company is either three or four ICR levels.
As previously announced, A.M. Best has received and reviewed the group’s unaudited statutory statements as of December 31, 2012. A.M. Best notes that Phoenix publicly stated it would provide an update on the restatement or before April 30, 2013. (See A.M. Best’s press release dated March 19, 2013.)
Given that March 31, 2013 has passed, Phoenix is once again in a cure period for delivering third quarter financials to the trustee of its outstanding 7.45% bonds. Therefore, if management believes it will not file within the cure period, it is again faced with soliciting a waiver from a majority of the debt holders or facing a potential acceleration of the debt. While A.M. Best believes the latter is a lower probability, and management has outlined potential sources of liquidity to deal with that scenario, Phoenix is overall in a less flexible position. Although Phoenix has indicated it has approximately $145 million in cash and equivalents in the holding company, currently, it has no demonstrated access to either the debt or equity capital markets and does not have a bank facility in place on which to draw.
It remains uncertain as to the magnitude of any potential adjustments to individual financial statements as well as the time required to complete the process. A.M. Best will continue to monitor developments regarding Phoenix’s restatement and filing, including holding discussions with management regarding any additional errors found and/or potential changes in the materiality of any adjustments or processes before reaching a conclusion on the under review status.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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A.M. Best Co.
Kate Steffanelli, 908-439-2200, ext. 5063
Senior Financial Analyst
Ken Johnson, CFA, 908-439-2200, ext. 5056
Managing Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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