Ratings agencies agree that Validus Holdings should not seesignificant negative repercussions from its proposed acquisition ofFlagstone Reinsurance Holdings, as statements today indicateValidus' ratings will remain unchanged.

Moody's Investors Service says it is affirming Validus' ratingswhile upgrading Flagstone's outlook to developing fromnegative.

Moody's says the rating action assumes “a successful closing ofthe transaction, which is subject to approval of regulators andFlagstone's shareholders.

The total cash and stock transaction is valued at more than $623 million with Flagstone shareholdersreceiving 0.1935 Validus voting common shares and $2.00 in cash foreach Flagstone share.

Moody's says it believes Validus will receive “some financialand strategic benefit, albeit small” from its acquisition. It willalso make Validus the largest Bermuda writer of propertycatastrophe reinsurance.

The ratings agency threw-up a cautionary flag, saying that withthe transaction, Validus' debt could rise modestly because of thecash outlay and the assumption of $250 million of Flagstone'sdebt.

Both A.M. Best and Fitch ratings also say Validus' ratings andoutlook remain unchanged by the proposed deal. Both ratingsagencies cite Validus' strong financial position and historicallystrong operating performance.

Fitch says Validus' financial leverage could increase modestlyimmediately following the transaction, “but should remain wellbelow median guidelines for Validus' current rating category.”

For Flagstone, A.M. Best put Flagstone's A- financial strengthrating under review with developing implications, reflecting“uncertainty around the future plans Validus may have forFlagstone, the possibility of the deal not closing due to risksbeyond the parties' control and this occurring during the peak ofwind season.”

Best notes that Flagstone's ratings had been assigned a negativeoutlook in 2011 because of the group's “historically weak operatingperformance and concerns over their enterprise risk managementcapability.” But Best says the company made “significant progress”in strengthening its ERM program, which may have made theorganization more appealing to Validus.

For its part, Fitch revised its Rating Watch to “evolving” from“negative” for Flagstone. Fitch says this reflects expectationsthat it will bring Flagstone's ratings in line with Validus'ratings if the deal closes as expected. While both companies arecurrently rated A-, Validus has a positive outlook.