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.