Converium Holdings (North America)'s 7 1/8%s of '23 tanked around 30 points early last week to around 43, a massive drop for the reinsurance company. It followed Standard & Poor's downgrade of Converium AG, the company's Swiss reinsurance parent, to triple-B from single-A minus. The downgrade caused the cancellation of a planned $420 million equity offering that was contingent upon maintaining a single-A minus rating. The U.S.-based holding company's paper had traded in the mid-80s as recently as the beginning of the month.
"The parent company was going to downstream funds to its U.S. reinsurance business from the equity deal," explained James Eck, analyst at Moody's Investors Service. After the S&P downgrade, Converium officials said the company would place all of its U.S. operations into run-off and not write new business, he added. "The company hasn't announced its new plan but since they're no longer going to recap their U.S. operations, there's no real way to service the debt other than to downstream payments from the parent company, which it is not under legal obligation to do," he stated. Moody's downgraded Converium's debt rating to Ba1 on Aug. 31 from Baa1.