American Financial Group Inc. AFG will redeem its 7% senior notes, due Sep 2050 having the principal amount of $132 million. The notes will be redeemed on Sep 30, 2015.
These notes were issued in Sep 2010.The company had then mentioned that it intends to use the net proceeds from the offering for general corporate purposes.
The redemption price of the notes would be equal to the sum of the principal amount of the notes outstanding and accrued but unpaid interest prior to the redemption date.
American Financial exited the second quarter of 2015 with debt of $1.02 billion, which reflects an improvement from the 2014-end level of $1.06 billion. Additionally, debt-to-capital ratio improved 30 basis points. With this redemption, the debt balance as well as the leverage ratio is expected to improve further. Also, these reflect the company’s efforts in reducing its dependence on debt. The redemption of debt will also lower the interest burden, thereby aiding margin expansion. A lower debt burden coupled with improving liquidity will further strengthen the company’s balance sheet.
American Financial has traditionally maintained moderate adjusted financial leverage in the range of low 20%, with good cash flow and interest coverage ratio. The recent 12% dividend hike testifies the insurer’s strong financial position. The company exited the second quarter of 2015 with a sturdy cash balance of $1.22 billion and excess capital balance of $1.18 billion.
Earlier this month, the company reported second-quarter net operating earnings per share of $1.28. The bottom line outperformed the Zacks Consensus Estimate of $1.21 by 5.8%. On a year-over-year basis, earnings increased 19.6% on higher underwriting profit and net investment income from Specialty Property and Casualty (P&C) insurance operations. The Zacks Rank #3 (Hold) property and casualty insurer delivered positive earnings surprise in the last four quarters with an average beat of 9.5%
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance sector are First American Financial Corporation FAF, Hallmark Financial Services Inc. HALL and Selective Insurance Group Inc. SIGI. All of these stocks sport a Zacks Rank #1 (Strong Buy).
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