Fitch downgrades Ballantyne Re

by Gill Montia

Story link: Fitch downgrades Ballantyne Re

Fitch, the credit rating agency, has downgraded the rating of Ballantyne Re, which is registered in Ireland and was established for the limited purpose of entering into a reinsurance agreement with Scottish Re.

Under the agreement, Scottish Re ceded a block of business to Ballantyne Re, following which Ballantyne Re issued notes to finance excess reserve requirements for the ceded block of business.

The downgrading by Fitch reflects the fact that Ballantyne Re has certain reserve funds with material exposure to sub-prime residential asset and mortgage-backed securities.

These have experienced a significant decline in market value during the past few months and Fitch has re-run its model of the Ballantyne Re cash flows.

The most optimistic scenario shows sub-prime market values declining modestly through the remainder of 2007 and recovering completely in 2008.

However, in the most pessimistic scenario, sub-prime market values ultimately decline and never recover.

The credit rating agency also ran three further scenarios where market values decline modestly and recover a large portion of their original value; where market values decline modestly and do not recover, and where market values decline significantly and recover most of their original value.

The ratings remain on Rating Watch Negative, to reflect that they may continue to migrate.

Whether or not this happens will depend upon the actual scale of decline and recovery in sub-prime market values.