Trenwick Group's difficulties continued yesterday when the company fell into default under the terms of its 6.70 percent Senior Notes by failing to make the necessary interest or principal payments.

The company said it had reached an agreement with the beneficial holders of the notes that may solve the problem.

Payments of capital and interest were due on the notes, a form of preferential borrowing, on Tuesday.

Trenwick stated that it had reached an agreement in principle with the beneficial holders of all of the Senior Notes to waive the default and to extend the maturity date of the Senior Notes until August 1, 2003.

Under the terms of the agreement in principle, Trenwick America Corporation will pay to the holders of the Senior Notes all interest accrued through April 1, 2003, in the amount of $2,512,500.

Trenwick said in a Press release that the terms of the agreement in principle are subject to negotiation and the execution of definitive agreements, including agreements among the holders of the Senior Notes.

There can be no assurance, the company pointed out, that definitive agreements would be reached with, or among, the noteholders.

Trenwick also stated that the terms of the agreement are subject to the approval of certain banks that have issued letters of credit on behalf of subsidiaries of Trenwick in support of its Lloyd's operations under a senior secured credit facility and that the terms have been submitted to such banks for their approval.

In addition, Trenwick stated that the default under the Senior Notes Indenture is deemed an event of default with respect to the aforementioned senior secured letter of credit facility and under certain other indebtedness of Trenwick America Corporation.

Trenwick said that it is in discussions with the letter of credit banks and will engage in discussions with other creditors as necessary to seek waivers from, or amendments to agreements with, these parties, consistent with its agreement with the holders of the Senior Notes.

If any of the above-mentioned creditors should determine to exercise the rights available to them as a result of the default described above, or take other action with respect to the assets of Trenwick or its subsidiaries, Trenwick and/or one or more of its subsidiaries may be forced to seek protection from creditors through proceedings commenced in Bermuda and other jurisdictions, including the United States.

In addition, at any time, the insurance regulatory authorities having jurisdiction over Trenwick's insurance company operating subsidiaries - which again includes Bermuda - may commence voluntary or involuntary proceedings for the formal supervision, rehabilitation or liquidation of such subsidiaries, or one or more of the creditors of Trenwick or its subsidiaries may commence proceedings against Trenwick or its subsidiaries.

Trenwick has been under the gun for some time now, its capital and surplus hugely eroded during 2002.

The nature of financing a growing company, which Trenwick once was, is such that all those who lend to the company (usually with the exception of common shareholders) link their well-being to that of other creditors.

A default event can often trigger a series of consequent defaults and make recovery more difficult.

Trenwick is a Bermuda-based specialty insurance and reinsurance underwriting organisation with two principal businesses operating through its subsidiaries located in the United States, the United Kingdom and Bermuda.

Trenwick's reinsurance business provides treaty reinsurance to insurers of property and casualty risks from offices in the United States. Trenwick's operations at Lloyd's of London underwrite specialty insurance as well as treaty and facultative reinsurance on a worldwide basis.

In 2002, Trenwick voluntarily placed into runoff its US specialty programme business and its specialty London market insurance company, Trenwick International Limited, and sold the in-force business of LaSalle Re Limited, its Bermuda based subsidiary.