Sagicor ‘may still feel it’
BARBADOS’ LATEST DOWNGRADE by Standard & Poor’s (S&P) could result in some fallout for Sagicor, even though the group has relocated its headquarters to Bermuda.
On July 20, Sagicor Financial Corporation (SFC) re-domiciled to Bermuda and initiated an overhaul of its corporate structure “to make the operating and non-operating insurance companies currently under Barbados-based Sagicor Life Inc. (SLI) direct subsidiaries of SFC”.
Shareholders approved these changes, including the re-registration, which was recommended by SFC’s board of directors following a sequence of credit rating downgrades for Barbados.
Now, in its latest credit rating statement for Sagicor, S&P said it was “placing our ‘B’ debt rating on Sagicor Finance (2015) Ltd. (SFL) on CreditWatch with positive implications while we’re analysing the effect of SFC’s re-domiciliation and its proposed corporate restructuring”.
It has also placed “our ‘BB-’ ratings on SLI on CreditWatch developing”.
The rating agency explained:“The CreditWatch positive designation on SFL indicates a higher than one-in-two possibility of its upgrade because the sovereign rating on Barbados will no longer be the reference sovereign rating, therefore, it will no longer be a cap for SFL’s issue-level rating.
“The CreditWatch developing designation on SLI reflects a higher than one-in-two possibility of a rating change, although the direction is dependent on our view of group support once the restructuring is completed.”
The good news for Sagicor was that S&P believes the relocation and related restructuring “could reduce SFC’s exposure to Barbados’ potential default, because the company is no longer based in that country, and cash flows from each operating subsidiary could flow directly to SFC”.
“We’re currently analysing credit, regulatory and legal implications….Once we determine which sovereign is relevant for SFC, and if its ratings are subject to a cap, given its considerable exposures in the ‘B’ rated countries (Jamaica and Barbados),” S&P said.
S&P said “if we believe that the SFC, which is no longer based in Barbados, will support the newly restructured SLI under almost any circumstances associated with a sovereign stress scenario, the ratings on the company could be up to three notches above Barbados’ or one notch higher than SLI’s current ‘BB-’ ratings”.
However, it added, “On the other hand, if such level of support is unlikely, the ratings on SLI could drop to the sovereign level if the company fails to pass our sovereign stress test, which is likely to happen, in our view, if the corporate overhaul leaves SLI with only its Barbadian insurance operations”.
S&P is expected to announce its decision in December. (SC)