Groupama downgraded to one above junk

Groupama has been downgraded to one above junk level despite recent attempts to shore up its solvency.

Standard & Poor’s (S&P) downgraded Groupama’s financial strength to BBB- from BBB. BBB- is the lowest investment grade and one above junk.

Groupama is also on negative watch, meaning the threat of further downgrades loom.

Groupama is moving rapidly to sell its assets and will soon receive €300m (£251m) for sale of GAN shares.

However, even after the capital injection, analysts have told Reuters the group will need an extra €2bn to €3bn.

That has seemingly been been backed by S&P, which in its downgrade today said even after the planned deals, Groupama’s regulatory and solvency capital remains “weak and further exposed to adverse events”.

Potential buyers for the UK assets have been alerted by the deteriorating situation.

An investment bank note was recently circulated, detailing Groupama’s assets, including the UK arm, in preparation for further sales.

The good news for brokers is that Groupama’s UK business is separately capitalised with 181% solvency and is regulated by the FSA.

A statement said: “The downgrade reflects our view that Groupama’s capital adequacy and regulatory solvency are at weak levels amid highly adverse financial markets, in spite of key strategic actions that the company has announced. These levels are in our view no longer commensurate with our ‘BBB’ ratings.

“We acknowledge that new management in place at Groupama is implementing comprehensive strategic actions to restore regulatory solvency and capital adequacy to levels that would be consistent with ‘BBB’ category ratings.

“In addition to those actions that we already referred to in our previous research update on Groupama (“French Insurer Groupama S.A. Ratings Downgraded To ‘BBB’ From ‘BBB+’; Outlook Negative,” published 23 September 2011), management is also considering additional measures that could significantly restore the group’s regulatory solvency.

“In particular, the company announced on 13 December 2011, the planned combination of Icade, a subsidiary of Caisse des Dépôts et Consignations (CDC; AAA/Watch Neg/A-1+) specialised in real estate development activities and services, and Société Immobilière de Location pour l’Industrie et le Commerce (SILIC), as well as CDC’s planned entrance into subsidiary GAN Eurocourtage’s capital via a minority stake.

“We assume this transaction will be completed in full in accordance with the memorandum of understanding signed by Groupama and CDC group on 13 December 2011.

“However, even when taking into account this assumption, Groupama’s regulatory solvency and capital adequacy remains in our view weak and further exposed to adverse events, in particular if capital markets were to deteriorate further.”

Despite the downgrade, S&P did offer words of encouragement for the Groupama, adding: “We continue to believe that Groupama has both the will and the liquidity to maintain full servicing of both the interest and principal of its rated debt obligations.”