Alleghany Corporation (Y) has priced $300 million senior notes due Sep 15, 2044. The notes carry an interest of 4.90%. Following the news of debt issuance, shares of Alleghany lost 0.7% over the last few trading session to close at $430.35 on Friday.
Alleghany intends to deploy the net proceeds from the offering to redeem a portion of its subsidiary, Transatlantic Holdings, Inc.’s 5.75% senior notes due 2015.
This offering came after a gap of more than two years. Alleghany’s last offering was announced in Jun 2012 wherein it offered 4.95% of $400 million senior notes due Jun 27, 2022.
With a total debt of $1.8 billion at the end of second-quarter 2014, Alleghany’s debt portfolio has decreased marginally from Dec 2013 end-level. As of Jun 30, 2014, the debt-to-capital ratio for the company was 0.24x, representing an improvement of 200 basis points (bps) from 0.26x at the end of 2013. However, with issuance of the $300 million senior notes, Alleghany’s debt-to-capital will deteriorate by 400 bps.
Alleghany’s interest expenses inched up 0.7% year over year to $21.9 million in the second quarter of 2014. The same will rise further following the new issuance. Nevertheless, the company’s solid operational performance generates enough funds to service the debt uninterruptedly. This is evidenced by continuously improving bottom line. The company has also surpassed expectation in three of the last four quarters with an average beat of 19.6%.
However, Alleghany’s strategy of redeeming notes of a higher coupon rate by issuing those at a lower coupon rate and thereby capitalizing on the low interest rate environment seems prudent.
Concurrently, A.M. Best Company assigned a “bbb+” debt rating with positive outlook to the senior notes. Further, Moody's Investors Service, a wing of Moody's Corporation (MCO) assigned a Baa2 rating to the notes. Rating affirmations or upgrades from credit rating agencies play an important part in retaining investors’ confidence on the stock as well as maintaining credit worthiness in the market.
Currently, Alleghany holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in property and casualty insurers can take a look at AmTrust Financial Services, Inc. (AFSI) and Endurance Specialty Holdings Ltd. (ENH). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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