USF&G;'s restructuring prompts downgrading of credit rating


On the heels of a record $610 million loss for the fourth quarter, the credit rating of USF&G; Corp. was ratcheted down a notch yesterday by Standard & Poor's Corp., a New York-based rating agency.

S&P; said it made the move after concluding that the Baltimore-based company's restructuring plan resulted in a "serious deterioration of capital" that went beyond expectations. Nearly $250 million of outstanding debt was affected.

USF&G; announced Wednesday that it lost $610 million during the last three months of 1990 as it moved to rid itself of much of its real estate, "junk" bond and common stock holdings.

The quarterly loss, which amounted to $7.32 a share, resulted in a loss for the year of $569 million, or $6.99 a share.

The overall write-offs and one-time charges recorded by the company in connection with its restructuring amounted to $661 million, according to S&P;'s tally. USF&G; also said it had slashed its dividend to 5 cents a share from 25 cents and that further layoffs were expected to help trim expenses.

"A major portion of the charges reflect the decision by management to reduce investment risks of the property-casualty and life insurance

subsidiaries," S&P; said yesterday. "S&P; believes this is prudent, but liquidating real estate, high-yield bonds and equities while market conditions are less than favorable generates significant capital losses that further expose the capital base."

S&P; said it lowered the senior debt rating of USF&G; to double-B-plus from triple-B, its preferred stock rating to double-B-minus from triple-B-minus and the company's commercial paper rating to A-3 from A-2.

In addition, the claims-paying ability rating of USF&G;'s largest subsidiary, United States Fidelity & Guaranty Co., and the company's

life insurance unit, Fidelity & Guaranty Life Insurance Co., were lowered to triple-B-plus from single-A.

Despite the lower ratings, S&P; said it was generally optimistic, given the recent restructuring moves.

"Long-term, S&P; expects USF&G;'s diversification efforts of the last decade in life insurance and financial services to yield adequate returns and a recovery of the capital base," S&P; said.

"Expense reductions, better asset quality and refocused insurance operations are expected to promote profitability, and the reduction of common stock dividends ends a major drain on capital."

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