Moody's lowers debt ratings on Old Republic

Moody's cuts debt ratings on Old Republic over withdrawn subsidiary spin-off

Associated Press

NEW YORK (AP) -- Moody's Investors Service on Wednesday lowered its senior unsecured debt ratings for Old Republic International Corp., citing the company's decision to withdraw plans to spin off a subsidiary.

The Chicago-based insurance underwriter announced last week it changed plans to spin off Republic Financial Indemnity Group Inc. The move came after stakeholders raised concerns that the spinoff would not be in their benefit.

The reversal prompted Moody's to downgrade Old Republic's senior unsecured debt ratings one notch to "Baa3" from "Baa2." That's the lowest possible investment-grade rating on Moody's scale.

The ratings firm also lowered the insurance financial strength ratings of Old Republic subsidiaries Old Republic General and Old Republic Title by one notch to "A2" from "A1."

Moody's has a negative outlook on the ratings for Old Republic and its principal subsidiaries, which means there's a 40 percent chance that the ratings could be lowered in the next 18 months.

The ratings firm said its outlook reflects continued risk of liquidity strain at Old Republic International, should regulators find that capital levels its subsidiary, Republic Mortgage Insurance Co., falls short of requirements, triggering an early redemption of the parent company's senior notes.

Moody's believes liquidity options exist in such a scenario but said such an event would still place pressure on Old Republic International.

"The intended spinoff would have helped protect Old Republic's bondholders and insurance policyholders from further deterioration at the troubled mortgage insurance operation," Moody's analyst Paul Bauer said.

The risk of financial strain at Old Republic International could strain its subsidiaries' financial flexibility, Moody's noted.

Moody's affirmed Old Republic subsidiary Manufacturers Alliance Insurance Co.'s insurance financial strength rating of "A3."

It also maintained an "A3" rating on Pennsylvania Manufacturers' Association Insurance Co. and Pennsylvania Manufacturers Indemnity Co.

Old Republic shares ended regular trading down 4 cents at $8.29. The stock added 5 cents to $8.34 after hours.

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