TEXT-S&P puts Phoenix Cos ratings on watch negative

Fri Dec 7, 2012 12:45pm EST

Overview
     -- The Phoenix Cos. Inc. (PNX) has breached a reporting covenant
for its $253 million senior debt which, unless remedied, could lead to a
potential acceleration of principal payments.
     -- As a result, we are placing our ratings on PNX, its subsidiaries, and 
debt issues on CreditWatch with negative implications.
     -- We may lower our ratings on PNX if it is increasingly unlikely that 
the company will remedy the breach of a reporting covenant or if an event of 
default is imminent

Rating Action
On Dec. 7, 2012, Standard & Poor's Rating Services affirmed its ratings on The 
Phoenix Cos. Inc. (PNX), its subsidiaries, and debt issues and then placed 
them on CreditWatch with negative implications.

Rationale
The CreditWatch listing reflects the risks associated with a potential 
acceleration of principal on PNX's 7.45% quarterly interest bonds due 2032 
because of a breach of a covenant. The covenant requires the company to 
provide its filed financial statements to the trustee within 15 days of the 
SEC filing deadline. PNX is currently restating its financial statements and 
was unable to fulfill this requirement for the third-quarter 2012. Failure to 
remedy the breach of covenant within 60 days of notice from the trustee would 
constitute an event of default and would allow the holders of not less than 
25% in aggregate principal amount of the outstanding bonds to declare the 
principal amount of all of the bonds to be due and payable immediately. While 
PNX has announced that the company will seek a covenant waiver, the 
CreditWatch listing reflects the potential liquidity and capital strain if 
acceleration of the $253 million of outstanding principal were declared in an 
event of default.

We believe PNX has $124 million in liquid resources at the holding company, 
while its regulated insurance operating subsidiaries have remaining regular 
dividend capacity of $18 million for 2012 and by our estimates $80 million-$90 
million of regular dividend capacity in 2013, falling short of the $253 
million principal outstanding. PNX will need to seek alternative financing to 
make up the potential shortfall and this may have potentially adverse impacts 
on its operating company capitalization. We believe Phoenix Life Insurance 
Co.'s company action level risk-based capital ratio would remain above 300%, 
notwithstanding the potential draw on the operating company's capital, but its 
capital adequacy would be diminished from its current level, in our view.

CreditWatch
If PNX remedies the breach of covenant or obtains a covenant waiver, we would 
expect to affirm all of our ratings at the current levels. On the other hand, 
we may lower the ratings by a notch if we observe that it is increasingly 
unlikely that PNX will remedy the breach of covenant or obtain a covenant 
waiver. If an event of default occurs and an acceleration of principal becomes 
imminent, we would expect to review the ratings for further downgrades.

Related Criteria And Research
Criteria for Assigning 'CCC+', 'CCC', 'CCC-', and 'CC' Ratings, Oct. 1, 2012

Ratings List
Ratings Affirmed; Ratings Placed On CreditWatch
                                        To                 From
Phoenix Cos. Inc.
 Counterparty Credit Rating
  Local Currency                        B-/Watch Neg/--    B-/Stable/--

PHL Variable Insurance Co.
Phoenix Life Insurance Co.
 Counterparty Credit Rating
  Local Currency                        BB-/Watch Neg/--   BB-/Stable/--
 Financial Strength Rating
  Local Currency                        BB-/Watch Neg/--   BB-/Stable/--

Phoenix Cos. Inc.
 Senior Unsecured                       B-/Watch Neg       B-

Phoenix Life Insurance Co.
 Subordinated                           B/Watch Neg        B


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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