Fitch Ratings has revised the rating watch to evolving from negative on all ratings for Sirius International Group, Ltd. and its operating subsidiaries, including its ‘A-‘ (Strong) Insurer Financial Strength (IFS) rating, its ‘BBB’ Long-Term Issuer Default rating (IDR), and its ‘BBB-‘ senior debt rating.
The rating action follows the announcement on March 27 that Sirius has launched a formal process to sell the company in collaboration with its majority shareholder, China Minsheng Investment Group Corp. Ltd. (CMIG), which has 96% ownership of Sirius’ common shares, said Fitch in a statement.
On March 6, 2020, Fitch placed Sirius’ ratings on rating watch negative as a result of a dispute with CMIG over Sirius’ ability to execute on a planned rights offering that would increase its public float and enhance its capital position.
“This disagreement raised questions regarding corporate governance standards that Sirius has in place as a Nasdaq publicly listed company,” said Fitch, noting that the dispute has been resolved with this coordinated sales process.
Fitch’s “evolving watch” on Sirius’ ratings reflects the uncertainty regarding the credit quality of any new owner as well as an assessment by Fitch of Sirius’ strategic importance to the new owner. In addition, Fitch said, there is also the question of the company’s ability to successfully execute a sale in the current COVID-19 crisis market environment.
Fitch said it is in the process of reviewing its insurance company ratings as a result of the significant uncertainties created by the onset of the global coronavirus pandemic.
“Assumptions are being put in place for declines in the market values of stocks, bonds, derivatives and other capital market instruments typically owned/traded by insurance companies; market liquidity; interest rate levels and the magnitude of coronavirus-related claim exposures,” said Fitch.
Prior to the rating watch negative issued on March 6, Fitch said, Sirius’ ratings were on negative outlook since December 2019 due operating performance deterioration in recent years.
As such, Fitch views Sirius’ ratings as having less tolerance with respect to downgrade sensitivities than companies with stable rating outlooks.
The ratings could be downgraded if rating sensitivities are notably breached under Fitch’s coronavirus pro forma review. These downgrade sensitivities include a combined ratio above 104% or an operating ratio above 96%, deterioration in capitalization, or a financial leverage ratio above 32%. The ratings could also be downgraded should the outcome of the strategic review and formal sale process negatively impact Sirius’ credit profile, said the ratings agency.
However, a sale to an entity whose credit quality is in line with, or better than, Sirius, which results in CMIG no longer being the majority owner, could lead to an upgrade, Fitch confirmed.
Source: Fitch
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