Bloomberg News

Groupama of France Says It Will Make Bond Payments This Month

October 11, 2011

Oct. 11 (Bloomberg) -- Groupama SA, the French insurer that holds the third-biggest stake in Societe Generale SA, said it will pay interest due on bonds this month after doubts about its capital spurred a ratings downgrade.

Groupama’s 1 billion euros ($1.4 billion) of 6.298 percent subordinated perpetual bonds don’t pay a coupon if a measure of the issuer’s solvency falls below a certain level, according to data compiled by Bloomberg. Such an event would also give the Paris-based insurer the option of skipping interest payments on its 750 million euros of 7.875 percent senior subordinated notes due in 2039. The next payments are due Oct. 22 and Oct. 27.

“Groupama won’t defer coupon payments on any of its bonds,” spokeswoman Aneta Lazarevic said in emailed response to questions. The insurer’s solvency ratio -- a measure of how much capital it holds compared with the amount required by regulators -- was 117 percent as of June 30, she said, more than the 100 percent threshold laid down in the bond conditions.

Fitch Ratings downgraded Groupama last month, citing “the increased risk of coupon deferral” on the subordinated bonds amid speculation its capital buffer would deteriorate. The insurer’s holdings of SocGen shares, whose price halved over the last three months, and government debt from the euro-region periphery have sent its bonds plunging to less than 40 percent of face value.

Groupama’s undated junior notes are quoted at 27.1 cents on the euro, down from 78.3 cents six months ago, according to Bloomberg Bond Trader prices. Its senior subordinated bonds, which can be redeemed by the issuer in 2019, have fallen to 36.9 cents from 98.1.

Peripheral Exposure

Groupama’s bonds fell because of “concerns about their capitalization and their exposure to peripheral sovereign debt,” said Rotger Franz, an analyst at SocGen in London. “They have quite a risky asset portfolio,” he said.

Fitch lowered Groupama’s financial-strength rating by two steps to BBB on Sept. 27 and cut its subordinated debt rating to BB from BBB-.

“The downgrade reflects the deterioration of Fitch’s view of Groupama’s capital adequacy following volatility in the financial markets, as a result of the group’s continued exposure to volatile asset classes,” according to the report. “Groupama’s largest challenge will be to smoothly manage the reduction of its exposure to equities and southern European government bonds.”

Standard & Poor’s lowered Groupama’s rating one step to BBB four days earlier, citing its “sizable exposure” to Greek and Portuguese government debt.

An insurer’s solvency ratio is a measure of its ability to meet long-term liabilities, with a higher percentage reflecting a greater chance net income can cover future payouts to creditors and customers.

--With assistance from Kevin Crowley in London. Editors: Paul Armstrong, Michael Shanahan

To contact the reporter on this story: Ben Martin in London at

To contact the editor responsible for this story: Paul Armstrong at

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