Analysts at BB&T Capital Markets yesterday upgraded Quanta Capital Holdings Limited from ?underweight? to ?hold?, while reducing their estimates for the company. This week, Quanta posted a net loss in the first quarter of 2006 of $17.1 million or 24 cents per share, compared to a roughly break-even result in the first quarter of 2005 due mostly to the downgrade to B++ at the beginning of March which affected the company?s ability to retain and write business in all product lines.

The Bermuda-based company also recorded a $4.5 million loss after 140 tornados struck Kansas, Missouri and Indiana on March 12 as well as $5.2 million of severance charges during the first quarter of 2006 as part of its overhead reduction plan.

The company continued to employ 187 staff at March 31, 2006. Since that time the workforce has been reduced by a third, or 21 employees, and Quanta is planning a further 50-60 reductions during the second quarter.

Gross written premiums in the first quarter were $114.9 million. Net written premiums were $62.7 million.

These volumes compared to gross written premiums of $172.7 million and net written premiums of 142.9 in the first quarter of 2005.

?We have written lower premium volumes and have recognised lower earned premiums in most of our product lines. Our results reflect just one month of operations in the post downgrade environment and we believe the impact of the downgrade will become more severe in Q2 and beyond,? said Quanta CFO Jonathan Dodd in the company?s conference call.

BB&T said its upgrade to hold came as a result of comments made by management in the company conference call. Quanta retained investment bank Friedman Billings Ramsey and J.P. Morgan Securities Inc. to assist it in evaluating strategic alternatives, including the potential sale of some or all of its businesses, the run off of certain product lines of the business or a combination of alternatives.

?In our opinion, management hinted that all of its current businesses are for sale and all but two, ESC and Lloyd?s would willingly be placed into runoff if a buyer cannot be found,? BB&T said in its note adding that Quanta likely appears to be an attractive acquisition target due to potential redundancy reserves.

In the past eight weeks, Quanta and its advisors have contacted or been in contact with a significant number of entities with a potential strategic or financial interest in Quanta.

A number of parties expressed interest, signed confidentiality agreements and conducted, or are currently conducting, various degrees of due diligence, said Quanta chairman Jim Ritchie who added the company is now exploring the most attractive opportunities.

?If we do not find more attractive opportunities outside Quanta we may determine that it is in the best interests of the company and its shareholders to place the US and Bermuda insurance and reinsurance operations in the run off along with Quanta Europe. I do not think it will be attractive however to place either Lloyd?s or ESC into run off as I believe these are viable and in fact attractive business platforms going forward.?

Although the downgrade has had ?significant impact? on the business its Lloyd?s syndicate believes it will have the ability to attract in the future.

Quanta is now working to diversify the syndicate?s capital sources to address the issue.

?With respect to Lloyd?s, we are committed to the future of Syndicate 4000 and will seek third-party capital to help us demonstrate a long-term attractiveness of this platform,? said Mr. Ritchie.

?In ESC, we see a solid producer of fee-for-service revenue going forward.?