XLIT Ltd., a wholly owned subsidiary of XL Group plc XL has priced subordinated notes in two tranches – 4.45% $500 million notes due 2025 and 5.5% $500 million notes due 2045. The notes will be unconditionally guaranteed by XL Group. Shares lost 0.2% in the last two trading sessions following the news of the new notes offering.
The company expects to deploy the net proceeds of $980.6 million (after deducting underwriting discounts and estimated offering expenses) in funding part of the Catlin Group Limited buyout. The acquisitions were announced in January for a purchase consideration of $4.1 billion, consisting of 38.8 cents in cash and 0.130 share of XL Group for each Catlin common share.
The transaction is expected to close in mid 2015, following approval from Catlin shareholders, the Supreme Court of Bermuda, customary regulatory approvals, anti-trust clearances, and other customary closing conditions.
It seems a prudent and common approach to procure funds from the market by issuing notes while the interest rate is still low. XL Group’s interest expenses increased about 13% in 2014 due to the increase in debt level following the issuance of the 2.30% Senior Notes due 2018 and the 5.25% Senior Notes due 2043 in 2013. With the new issuance, the number is going to rise further.
The company’s debt level at 2014 end improved 27% with debt to equity ratio improving 540 basis points. However, with the new issuance, the level will rise and the leverage ratio will deteriorate 880 basis points.
In addition, this approach ensures sufficient liquidity at the company. Recently, ACE Limited’s ACE ACE INA Holdings Inc. offered $800 million senior notes, AFLAC Inc. AFL issued $1 billion senior notes while Marsh & McLennan Companies MMC issued senior unsecured notes worth $500 million.
XL Group presently carries a Zacks Rank #3 (Hold).
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