S&P cuts Arrowhead outlook to negative

Standard & Poor's said it revised its outlook on Arrowhead General Insurance Agency Inc. to negative from stable and affirmed its B counterparty credit rating, its B first-lien senior secured bank loan and first-lien revolving credit facility ratings and its CCC+ second-lien junior secured bank loan rating. The recovery ratings on the first-lien debt and on the second-lien debt remain 3 and 6, respectively.

The agency said the change in outlook reflects its concerns about the ongoing impact of softer-than-anticipated market conditions on Arrowhead's financial performance, including the company's prospective ability to meet its bank loan covenants, which become more restrictive during 2008.

For the first nine months of 2007, Arrowhead reported a net loss of $2.9 million and total revenue of $85 million. S&P said the revenue for the period was relatively unchanged compared with the same period in 2006, but because of a leveraged majority investment in 2006, the company maintains a weaker capital position and its cash flow is more strained.

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