Lincoln National Corp. LNC announced the pricing of senior unsecured notes worth $300 million for multi-purpose shelf registration. The aforementioned long-term notes are dated to mature in 2025.
The 10-year fixed-rate notes bear an interest rate of 3.35%. About $250 million of the proceeds are expected to be utilized for pre-redeeming long-term notes carrying an interest of 4.3% that are slated to Jun 2015. The remaining will be used for enhancing business operations. Management may also consider deploying the residue for share buybacks.
Ratings Agencies Favor New Note Offering
Ratings agencies – A.M. Best and Moody’s Investor Service have casted “a-” and “Baa1” ratings to the newly issued notes, respectively. These are also long-term debt ratings for Lincoln National. The outlook for both remains stable. The new debt is not expected to have any material adverse impact on the company’s financial leverage and capital.
Both A.M. Best and Moody’s vouch for Lincoln National’s leading market position, superior brand value within its core life insurance operations, disciplined claims management, strong distribution network and earnings potential, all of which have scaled up its underwriting capacities and operating leverage.
Lincoln National’s recent efforts to de-risk product portfolio and steer it toward to less capital- and interest-sensitive life products has facilitated improvement in its credit profile. While the company’s adjusted financial leverage is projected to be around 23%, Moody’s expects leverage ratio to tread in the low-to-mid 20% band in the upcoming period, well within their benchmark of 30%.
Going forward, Moody’s also anticipates Marsh & McLennan to keep the cash flow coverage within 3x-9x and GAAP return on capital of 7%−9%. These levels indicate a steady capital position along with stable liquidity and operating leverage.
Peer Take
Lincoln National is not sole insurer to have issued long-term debt recently. MetLife Inc. MET also issued 30-year senior notes worth $1 billion at 4.05% and another set of 10-year notes worth $500 million at 3% interest. These are expected to be utilized for redeeming debt worth $1 billion as well as for improving operating leverage, while maintaining the financial leverage at around 25%.
Other insurers like Kemper Corp. KMPR and Marsh & McLennan Cos. Inc. MMC also issued 10-year and 5-year notes worth $250 million and $500 million, respectively, this week. Debt issuance by these insurers indicate their stable capital position.
Zacks Rank
Lincoln National carries a Zacks Rank #3 (Hold) currently.
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