Arthur J. Gallagher & Co. (AJG) has priced the private placement offering of its $600 million senior unsecured notes.
The share price of Arthur J. Gallagher & Co. inched up 0.2% to close at $46.19 on Dec 24, on the back of broader market fundamentals.
The company is offering three series of notes. Among them, series H is of $325 million that carries a coupon rate of 4.58% per year and is scheduled to mature in 2024. Series I is of $175 million, carries a coupon rate of 4.73% and will mature in 2026. Finally, series J is worth $100 million with a coupon rate of 4.98%. Series J notes will mature in 2029.
These senior notes will be offered in a private placement and will not be registered under the Securities Act.
Arthur J. Gallagher & Co. intends to pay off its line of credit facilities using the net proceeds from the debt transaction.
As of Sep 30, 2013, the debt-to-capital ratio for Arthur J. Gallagher & Co. was 54.9%. This, however, compares unfavorably with that of other insurance brokers like Validus Holdings, Ltd. (VR) (20.8%) and Marsh & McLennan Companies Inc. (MMC) (45.5%). Debt-to-equity ratio of Arthur J. Gallagher & Co. increased 340 basis points (bps) from the 2012-end level. With the current issuance of $600 million notes, the same is expected to increase by another 3100 bps to 85.9%.
The new issuance is also expected to push interest expense higher for Arthur J. Gallagher & Co. The figure had already increased 22.4% year over year to $13.1 million in the third quarter of 2013. Nonetheless, Arthur J. Gallagher & Co.’s solid operational performance generates enough funds to service debt uninterruptedly. The company has its interest coverage ratio of 7.5% which lies below the industry level of 8%.
Arthur J. Gallagher & Co. presently carries a Zacks Rank #3 (Hold). Better-ranked insurance broker AON plc (AON), with a Zacks Rank #2 (Buy), is worth considering.
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