A.M. Best Places Ratings of Standard Casualty Company under Review with Negative Implications

A.M. Best Co. has placed under review with negative implications the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Standard Casualty Company (New Braunfels, TX). Standard Casualty is a subsidiary of Palm Harbor Homes, Inc. (Palm Harbor) [NASDAQ: PHHM], a manufacturer and marketer of factory built homes.

The rating action reflects the heightened uncertainty in Palm Harbor’s credit facility, debt obligations and liquidity requirements, which may result in a potential burden on Standard Casualty.

In a recent public filing, Palm Harbor announced it was in default on secured financing from Textron Financial Corporation. Palm Harbor also disclosed that in the event of an acceleration of the Textron facility and the notes, it is unlikely that it could borrow or raise the needed funds, and as a result, may be forced to seek protection under U.S. bankruptcy laws.

Palm Harbor is actively engaged in discussions with third parties that have expressed interest in refinancing its debt, making an investment in or acquiring the company both pursuant to a bankruptcy court proceeding and outside the bankruptcy process. Currently, Palm Harbor's efforts are primarily centered on obtaining debtor-in-possession financing and a sale of the company's assets facilitated through the filing of a Chapter 11 petition under U.S. bankruptcy laws.

The ratings of Standard Casualty will remain under review pending further discussions with management on strategic initiatives to rectify Palm Harbor’s credit and liquidity issues, which would eliminate the potential financial burden on Standard Casualty.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “A.M. Best’s Ratings & the Treatment of Debt”; and “A.M. Best’s Perspective on Operating Leverage.” Methodologies can be found at www.ambest.com/ratings/methodology.

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