Rating Action on HIG's Debts - Analyst Blog
April 05 2012 - 11:24AM
Zacks
A.M. Best Co. conferred a debt rating of “bbb+” to 4% $325
million senior notes due 2017, 5.12% $800 million senior notes due
2022 and 6.625% $425 million senior notes due 2042 to be issued by
The Hartford Financial Services Group, Inc.
(HIG).
Subsequently, the rating agency also allotted a debt rating of
“bbb-” to 7.875% $600 million fixed-to-floating rate junior
subordinated debentures due 2042.
However, presently all the ratings are placed under review.
Another rating agency, Fitch Ratings has also allotted a “BBB-” to the senior notes while conferring a “BB” to the junior subordinated debentures.
Standard & Poor's Ratings Services, yet another rating agency, provided a “BBB-” to the senior notes and “BB” to the junior subordinated debentures.
The junior debentures,
till April 15, 2022 will have a fixed rate of 7.875% interest,
thereafter the junior debentures will bear quarterly interest equal
to the three-month LIBOR rate, plus 5.596%. These debentures can be
redeemed after April 15, 2022, in whole or in part, subject to
principal plus any accrued and unpaid interest amount payment.
However, if the debentures are redeemed in part, there has to be a
minimum of $25 million aggregate principal amount remaining
outstanding. Also, the debenture may be redeemed fully prior to
April 15, 2022.
The proceed from the issuances will be deployed to buyback
outstanding 10% fixed-to-floating rate junior subordinated
debentures due 2068 from Germany’s largest insurer, Allianz SE. Any
amount remaining from the proceeds, if any at all, will be utilized
for general corporate purposes. Hartford will use $2.125 billion to
buyback these debentures.
However, the debenture buyback is dependant on the consent of
the holders of Hartford’s 6.1% senior notes due 2014. The burden of
interest is also expected to lower, thereby improving the fixed
coverage ratio.
Following the debt issuance and buyback of warrants and
debenture, Hartford’s debt to capital ratio will become 22%.
Hartford also intends to utilize $300 million to buyback
outstanding Series B and C warrants. This move will thereby reduce
the outstanding balance under Hartford’s $500 million share
repurchase program to $106 million.
We have a Neutral recommendation on Hartford Financial Services
Group. The quantitative Zacks #3 Rank (short-term Hold rating) for
the company indicates no clear directional pressure on the stock
over the near term.
Headquartered in Connecticut, the Hartford Financial Services
Group is one of the largest multi-line insurance and investment
companies in the country, providing investment products, individual
life, group life and group disability insurance products, and
property and casualty insurance products in the U.S. The company
competes with American International Group, Inc.
(AIG) and Berkshire Hathaway Inc. (BRK-A).
AMER INTL GRP (AIG): Free Stock Analysis Report
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis Report
HARTFORD FIN SV (HIG): Free Stock Analysis Report
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