Proceeds from the equity security units are part of XL Capital Ltd’s capital action plan to offset the recently announced $1.775 cash portion of the agreement with Security Capital Assurance Limited (SCA). Each equity security unit has a stated amount of $25 and will consist of a contract to purchase for $25 ordinary XL Capital Ltd shares on August 15, 2011 and a 2.5% ownership in a senior note of XL Capital Ltd, due August 15, 2021, with a principal amount of $1,000. In addition to the equity security units, XL Capital Ltd will issue $2.0 billion of ordinary shares.
The agreement with SCA commutes and terminates certain reinsurance and other agreements among the parties and as a result causes certain guarantees by XL Insurance (Bermuda) Ltd (Bermuda) to no longer have any force or effect. A.M. Best’s viewpoint is this should bring an end to the unanticipated charges, which have beset the company for the past several years. XL Capital Ltd’s debt-to-capital ratio remains relatively elevated at 30% following the issuance of the equity security units, with fixed charge coverage anticipated to be maintained in the mid-single digit range.
In A.M. Best’s opinion, the agreement with SCA closes what had become a serious encumbrance on the company; however, A.M. Best remains concerned with the prospective impact this issue may have had on XL Capital’s market profile and the potential effect on the company’s operations and competitive position. Accordingly, all XL Capital Ltd and its subsidiaries ratings will remain under review with negative implications pending the successful issuance of its ordinary shares and equity security units followed by A.M. Best’s assessment of XL Capital’s core business franchise and the containment of any negative effects that may have occurred. BN-NJ-07-29-2008 1015 ET #