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Meadowbrook a likely legacy target

Meadowbrook is likely to receive interest from legacy buyers after the company effectively put itself into play by appointing Willis Capital Markets to conduct a strategic review.

Meadowbrook was forced to report a $115mn goodwill impairment charge in its delayed second quarter results after rating agency AM Best downgraded the company to B++ from A-, citing concerns over negative reserve development and worse than expected results.

As reported on page (XXX), the charge means the insurer is in violation of its debt covenants on its credit facility.

The company's current woes have led its share price to drop by more than 22 percent since the turn of June, meaning it is now trading at a 26 percent discount to book value.

Run-off buyers typically think of a public company as "in-play" if its trades at least 25 to 30 percent below book value.

This allows a bid above the current share price that leaves room for a profit once the cost of shutting the company down is considered.

Run-off buyers have become increasingly interested in pursuing live companies with poor trading valuations, and argue they can provide a crystallisation of value for long-suffering shareholders.

Enstar's purchase of SeaBright in 2012 also demonstrated the willingness of legacy buyers to take on complex risks such as workers' compensation business, which was previously considered relatively unattractive due to regulatory restrictions on claims settling.

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