Old Republic International Corporation (ORI) has recently issued senior notes worth $400 million, carrying an interest rate of 4.875%. The notes are scheduled to mature on Oct 1.
The issuance requires the company to pay interests semi-annually on Apr 1 and Oct 1 every year with the first interest payment scheduled for Apr 1, 2015. Old Republic offered the notes at 99.498% of the face value to yield 4.94% till maturity.
The company intends to deploy the proceeds from the issuance to make additional capital contributions to its insurance subsidiaries and for other general and corporate purposes.
Old Republic’s interest expenses and other costs decreased 1.8% year over year in the second quarter of 2014. But the new notes issued are expected to increase the same going forward. However, we believe that the company’s solid operational performance generates enough funds to service the debt uninterruptedly.
With a total debt of $566.2 million at the end of the second quarter of 2014, Old Republic’s debt portfolio had decreased 0.5% from year-end 2013. As of Jun 30, 2014, the debt-to-capital ratio of the company was 0.13x, almost in line with year-end 2013. However, we expect the latest issuance to elevate the debt level of the company and deteriorate the leverage ratio.
Old Republic currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the multiline insurance space that look attractive at current levels include American International Group, Inc. (AIG), Radian Group Inc. (RDN) and FBL Financial Group Inc. (FFG). All three stocks carry a Zacks Rank #2 (Buy).
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