Standard & Poor's Lowers Ratings on Reliance Group Holdings Inc.

Standard & Poor's lowered its ratings on Reliance Group Holdings Inc. and its subsidiaries due to increasing concerns that the company will fail to refinance $500 million in debt obligations maturing in August and November of this year. The company's divestiture of key businesses and retention of run-off reserves on sold businesses have weakened its ability to generate liquidity and meet ongoing obligations. The developing outlook reflects the uncertainty surrounding Leucadia National Corp.'s acquisition of Reliance's outstanding shares, which may threaten Reliance's business relationships and further deteriorate its financial condition.

Key Takeaways:

• Standard & Poor's lowered its ratings on Reliance Group Holdings Inc. and its subsidiaries, placing them on CreditWatch with developing implications.
• The company faces significant liquidity strain due to projected negative operating cash flow and the need to refinance $500 million in debt obligations.
• Reliance's divestiture of key businesses has weakened its ability to generate liquidity and meet ongoing obligations.
• The company retains run-off reserves on sold businesses, exposing it to potentially significant adverse loss reserve development.
• Leucadia National Corp.'s acquisition of Reliance's outstanding shares may threaten Reliance's business relationships and further deteriorate its financial condition.
• Standard & Poor's will continue to monitor Reliance's discussion with Leucadia and its financial condition.
• The company's ability to meet its various obligations at the operating-company and holding-company levels is weak.
• Reliance's financial condition is expected to deteriorate further due to uncertainty surrounding reported loss reserves.

Statistics:

• $500 million: The amount of debt obligations maturing in August and November of this year that Reliance faces difficulty refinancing.
• CCC: The counterparty credit rating lowered by Standard & Poor's on Reliance Group Holdings Inc.
• BB-: The senior debt, subordinated debt, and challenged credit ratings lowered by Standard & Poor's on Reliance Group Holdings Inc.
• 100%: The percentage of outstanding shares of Reliance to be acquired by Leucadia National Corp.
• 5-7 business days: The timeframe within which Leucadia expects to complete its due diligence on Reliance.

Sources:

• Standard & Poor's press release dated July 6 (no date of publication provided)
• CreditWire, a credit rating service provided by Standard & Poor's.