Fitch Ratings yesterday downgraded Scottish Re Group Limited?s ratings on concerns that the troubled reinsurer does not have enough liquidity to repay $115 million in convertible notes due in December without bank group concessions.

Scottish Re interim CEO Paul Goldean has responded, by saying the underlying business of the company is sound in response to recent ratings downgrades by S&P and Moody?s to the waning fortunes of the Bermuda based company.

?The downgrades are in response to Scottish Re?s disclosure in its recent second quarter 2006 Form 10-Q filing, which indicated that the company?s short-term liquidity and collateral sources are tight,? Mr. Golden said. ?The company is in active discussions regarding capital and liquidity alternatives. At this time, it is important for shareholders to be aware that all of Scottish Re?s regulated entities are capitalised in excess of their required minimum.?

?Scottish Re?s underlying business is sound, as both S&P and Moody?s noted, and the company?s mortality experience remains in line with expectations.?

?We continue to actively pursue the previously announced strategic alternatives and remain confident in the company?s ability to execute one or more of these strategic alternatives,? Mr. Goldean said. The ?strategic alternatives? are widely rumoured to include a possible sale of all or parts of Scottish Re to one of Europe?s big reinsurance companies ? Swiss Re, Munich Re or Hannover Re.

Any one of them would particularly like to acquire Scottish Re?s US life reinsurance business, which is seen as offering substantial future growth. None of the companies, however, has as yet confirmed that they are interested.

The ?strategic alternatives? are widely rumoured to include a possible sale of all or parts to one of Europe?s big reinsurance companies ? Swiss Re, Munich Re or Hannover Re.

Any one of them would particularly like to acquire the Group?s US life reinsurance business, which is seen as offering substantial future growth. None of the companies, however, has as yet confirmed that they are interested.

As Swiss Re is still in the process of digesting GE Insurance Solutions and Hannover Re is in the process of restructuring its US operations between Praetorian and Clarendon, Munich Re would appear to be the candidate most likely to succeed.

Fitch said the downgrade follows a review of Scottish Re?s liquidity and collateral position, which now appear ?tighter than Fitch had previously anticipated?.

The agency lowered its issuer default rating to ?BB? from ?BBB-? and changed the insurer financial strength on its operating units to ?BBB? from ?BBB+.? and all of the company?s ratings remain on a negative watch.