Dominion Bond Rating Service has downgraded the senior unsecured debt of the Cunningham Lindsey Group Inc. to “CCC” from “B (low)”.

DBRS also removed the rating from “Under Review with Negative Implications”, where it has been since October 24. The trend has been returned to “Stable”.

“This action reflects the company’s continuing weak financial performance and high debt ratio, especially given the company’s significant debt maturities in 2008,” the rating agency said. “The company’s earning and cash flow continue to be disappointing, with few near-term prospects for significant improvement.” Financial flexibility remains limited, it added.

“While the latest in a line of new management teams are taking necessary steps to return the company to profitability, including the 2004 sale of the money-losing U.S. third-party administration business and adopting a stronger focus on divisional profitability, improved performance has yet to be reflected in the financial results,” DBRS added. “2006 results to the end of September suggest that improved earnings in the United States have been more than offset by deteriorating performance in Canada, the United Kingdom and Europe.”

The rating agency noted that the strength of the Canadian dollar has also put additional downward pressure on reported results. “As such, consolidated cash flow remains weak, forcing the company to borrow from its parent, Fairfax Financial Holdings, to meet its current operating cash flow requirements.”

Debt service coverage ratios have also deteriorated in 2006, despite the reduction in debt levels since 2004, it said. “Also pressuring the rating is the over $200 million in debt maturing in 2008, of which $72 million in non-revolving term loans ranks senior to the $125 million in Series B Debentures. Without exhibiting longer term profitability, the refinancing of this debt is very much dependent on the continuing sponsorship of the company by Fairfax,” it said. “While DBRS has no reason to suspect that Fairfax will not continue to support the company, at least in the short run, it is also questionable how long this support can be assumed as part of the rating analysis, given the company’s weak financial performance.”