Earlier this week, Aflac Inc. (AFL) issued long-term fixed rate notes at a price of $750 million. While the transaction will be settled today, market response toward it could not be gauged. Shares rose a nickel to $59.48 in the last two trading sessions following the announcement.
Accordingly, these 10-year fixed rate senior notes worth $750 million is issued at a price of $99.899 and carry a coupon rate of 3.625%. Moreover, the expected yield for the notes are pegged at 3.637%.
Further, Aflac has appointed Goldman Sachs & Co., Mizuho Securities USA Inc. of Mizuho Financial Group Inc. (MFG), Morgan Stanley & Co. LLC and Wells Fargo Securities LLC as its joint book-running managers.
Management plans to use the proceeds from the sale of these notes to enhance liquidity and operating leverage. Aflac may also make capital contributions to its operating subsidiaries, from the new debt issuance, thereby gaining capital flexibility.
Rating Action
Ratings agency A.M. Best has cast an “a-” debt rating on the issued notes with a stable outlook. Though the new debt is expected to raise financial leverage to about 24%, the ratings agency considers Aflac’s balance sheet as secure given its healthy risk-based capital, strong solvency ratio and stable interest-coverage ratio.
The company’s financial leverage is also within A.M. Best’s recommendations. Moreover, the debt refinancing implemented in past couple of years have improved Aflac’s debt maturity profile as well, while investment losses have also narrowed from the historical highs. The ratings agency also remains confident about the company’s core operating strength.
Aflac’s strong brand name for individual guaranteed-renewable health and accident insurance, solid business model and long-term investment allocation strategy have been helping it remain resilient even amid the present economic weakness in Japan. These factors will continue to provide cushion to the company and translate into higher earnings in the future.
Zacks Rank
Currently, Aflac carries a Zacks Rank #3 (Hold). Meanwhile, one could consider promising stocks like Morgan Stanley (MS) and Goldman Sachs (GS) that have a Zacks Rank #2 (Buy).
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