S&P Sees No Changes in SCOR or Converium Ratings from Takeover

In two separate announcements Standard & Poor’s Ratings Services said it doesn’t contemplate making any changes in its ratings on Converium AG or France’s SCOR Group, following the announcement that Converium has urged its shareholders to accept SCOR’s takeover offer (See IJ web site May 10).

S&P currently rates Zurich-based Converium and Paris-based SCOR “A-” with stable outlooks.

“The endorsement of the Converium board and the stated commitment of the Global Executive Committee to retain Converium talent and its clients lessens the potential for Converium’s franchise value to be eroded should SCOR’s revised bid be successful,” said S&P. However, there could be some negative consequences if there’s a “significant loss of key staff and/or support from its key European client base arising from the proposed transaction.”

While SCOR’s increased offer produced no signs of a credit watch or ratings change, S&P reiterated its concerns, voiced in a bulletin issued when SCOR acquired its initial stake in Converium. It had earlier cited an increased offer as being of concern, but S&P said it “does not consider this increase [from CHF 21.4 to CHF 22.9 ($17.55 to $18.78)], which equates to about €100 million [$134.5 million] (7 percent), to be material.” Apparently S&P considers the current price to be within its rating parameters.

The remaining concerns include include:
— SCOR’s failure to secure the conditions for a successful bid, thereby potentially damaging Converium’s franchise.
— SCOR is forced to increase its levels of financial gearing significantly to finance a bid.

At this time S&P said that although precise funding mix for the cash component of the bid is yet to be finalized, it “does not anticipate that the level of financial gearing involved will be sufficient to jeopardize the ratings at their current level.”