Moody’s Investors Service has cut the senior debt rating of The Phoenix Cos. further into junk range, and changed its outlook on the Hartford insurer and its financial-services subsidiaries to “stable” from “negative,” The Associated Press reports.
Moody’s attributed the downgrades to the insurer’s “relatively weak capital position, which exacerbates the company’s limited financial flexibility,” along with expectations for modest earnings in the near to medium term. The company has limited access to the debt and equity capital markets, Moody’s said.
Phoenix had about $51 million in cash and securities as of March 31.
The ratings agency cut Phoenix’s senior debt rating to “B3” from “B1.” The insurance financial strength rating of the company’s life insurance subsidiaries, including Phoenix Life Insurance Co., was downgraded to “Ba2,” from “Ba1” and the debt rating on Phoenix Life’s surplus notes was downgraded to “B1” from “Ba3.”
All of the ratings are below investment grade, or “junk.” The ratings affect about $428 million in securities.
The company lacks enough earnings capacity to replenish its diminished capital, said Moody’s analyst Shachar Gonen. “In addition, the company’s existing brand will not provide much support, as Phoenix changes its focus to the broader middle market to regenerate sales rather than its traditional affluent customer base.”
The stable outlook is based on the expectation that investment losses will stabilize or decline in coming periods, which will help earnings a bit. Moody’s is concerned, however, about the company’s sizable holdings of junk bonds and collateralized debt obligations that have been downgraded.
The ratings could be upgraded if Phoenix raises its capital levels, generates strong earnings and posts investment losses for 2010 to below $100 million. Further downgrades are possible if the company’s cash runs low, it loses more than $200 million in investments or its risk based capital ratio declines substantially.
