Fitch Ratings has revised the Rating Watch status for Old Republic International Corporation (ORI) and its insurance company subsidiaries to Negative from Positive, following the company's announcement to withdraw the spin-off of Republic Financial Indemnity Group, Inc. (RFIG).
Fitch had most recently placed the ratings on Rating Watch Positive on March 23, 2012 after ORI's announced plan to spin off of its wholly owned subsidiary, RFIG. RFIG was formed to combine ORI's troubled mortgage insurance unit and its consumer credit indemnity (CCI) lines. The spin-off was withdrawn due to what management reported as 'objections raised by certain stakeholders.'
A successful spin-off would have mitigated Fitch's concern regarding a potential subsidiary collateral covenant breach under ORI's debt obligations and eliminated any future cash drain related to RFIG. ORI's debt is subject to acceleration if any of its significant subsidiaries experience bankruptcy, insolvency, rehabilitation or reorganization.
Renewed uncertainty regarding the ultimate long-term solution for the mortgage insurance business, as well as the renewed potential for a debt covenant breach, support today's action.
On Jan. 30, 2012, Fitch had downgraded ORI's senior debt rating by three notches and placed the ratings on Rating Watch Negative when the agency's concerns first surfaced as to a possible future covenant breach. Today's action effectively returns the Rating Watch status to that in effect prior to the March 2012 RFIG formation announcement.