Scottish Re Group's bonds tumbled 12 points, but then rebounded nine-and-a-quarter points last week after the company assuaged investor concerns about its liquidity. Fears about the company were sparked by the resignation of CEO Scott Willkomm after the Bermuda life reinsurer reported it expects a $130 million net operating loss for the second quarter. Scottish Re's senior unsecured convertible 4 1/2% '22 notes fell to 87 on the announcement, but then rebounded to 96 1/4 after the company said it did not face any near-term liquidity or solvency problems.
The company's second quarter loss was mostly due to a $112 million valuation allowance on deferred tax assets. It also said it expects a reduction in estimated premium accruals, increased retrocession costs and a write-down of deferred acquisition costs. Moreover, it announced it had hired Goldman Sachs and Bear Stearns to evaluate strategic alternatives and potential sources of capital. Ratings agencies downgraded the company after the announcement, but the reinsurer was quick to assuage fears about its solvency stating that its regulated entities were capitalized well in excess of minimum required levels. It added in a release it is confident it can meet its obligations on its $115 million outstanding convertible notes, which are puttable to the company at par on Dec. 6. A spokeswoman declined comment and a call to Paul Goldean, interim ceo, was not returned.