CHICAGO--(BUSINESS WIRE)--Fitch Ratings has maintained PartnerRe Ltd.'s (PRE) ratings on Rating Watch Negative, including its 'A+' Issuer Default Rating (IDR) and the 'AA-' Insurer Financial Strength (IFS) rating of Partner Reinsurance Company Ltd., the company's principal reinsurance operating subsidiary. A complete list of rating actions appears below.
KEY RATING DRIVERS
Fitch's rating action follows the announcement today that PRE has agreed to be purchased by EXOR S.p.A. (EXOR), an Italian-based private investment company, for $137.50 per share in cash plus a special pre-closing dividend of $3.00 per share ($6.9 billion total). Fitch does not rate EXOR. The closing is expected in the first quarter of 2016, subject to regulatory approval and PRE shareholder approval. This follows the termination of the amalgamation agreement to merge with AXIS Capital Holdings Limited (AXIS).
The Negative Watch reflects the continued high level of uncertainty for PRE, with its ultimate future ownership in question since January 2015, when PRE and AXIS agreed to combine as a 100% stock merger of equals. At that time, Fitch placed PRE on Rating Watch Negative reflecting its more vulnerable competitive position with the immediate departure of PRE's CEO Costas Miranthis.
The transaction with EXOR presents near-term credit negatives to PRE given execution and integration risk inherent to an acquisition. In addition, a change in ownership to EXOR does not improve PRE's near-term competitive position in the challenging reinsurance environment, as the company would effectively maintain its current size, scale and operating profile. PRE has limited business diversity outside of reinsurance and is thus particularly susceptible to current less favorable reinsurance market conditions, with weaker pricing and more generous terms and conditions. This is leading several of PRE's competitors to engage in consolidation as a means to enhance their relative competitive position.
The EXOR purchase is not expected to close until early 2016 and the agreement includes a 'go shop' period to solicit competing offers. As such, PRE will continue to face uncertainty tied to ultimate company ownership and leadership. The operational effect of this uncertainty is unclear. The outcome of important Jan. 1, 2016 reinsurance treaty renewals will provide useful information regarding ceding company and reinsurance broker constituent perspective on the EXOR transaction.
RATING SENSITIVITIES
Fitch plans to address the Rating Watch after completing a more detailed analysis of EXOR's credit quality and gaining an understanding of its operating and integration strategy for PRE. This includes the appointment of a CEO, business growth expectations and capital management plans for PRE.
FULL LIST OF RATING ACTIONS
Fitch maintains the following ratings on Rating Watch Negative:
PartnerRe Ltd.
--IDR 'A+';
--$230 million 6.5% series D cumulative redeemable perpetual preferred securities 'BBB+';
--$374 million 7.25% series E cumulative redeemable perpetual preferred securities 'BBB+';
--$250 million 5.875% series F non-cumulative redeemable perpetual preferred securities 'BBB+';
--$63 million junior subordinated notes due Dec. 1, 2066 'BBB+';
--$250 million 6.875% senior unsecured notes due June 1, 2018 'A';
--$500 million 5.5% senior unsecured notes due June 1, 2020 'A'.
Partner Reinsurance Company Ltd.
--IFS at 'AA-'.
The ratings were not reviewed with respect to Fitch's updated insurance notching criteria published July 14, 2015.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Insurance Rating Methodology (pub. 14 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988967
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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