ProAssurance Corporation (PRA - Analyst Report) is offering 5.30% senior secured notes worth $250 million with maturity scheduled on Nov 15, 2023. However, the market has not reacted to this development with the share price remaining almost stable.
The proceeds from the issuance will be deployed for general corporate purposes, debt repayment and other capital management activities. The offer is slated to close on Nov 21, 2013.
ProAssurance has maintained a low debt profile so far in 2013. The company had outstanding debt of $125 million as of Dec 31, 2012, that remained outstanding as of Sep 30, 2013 as well. The debt-to-capital ratio for ProAssurance as of Sep 30, 2013 was 0.05x, almost in line with that at year-end 2012. However, with the issuance of the $250 million debt, the debt-to-capital ratio is projected to deteriorate.
The new issuance would require ProAssurance to pay an annual interest of $13.25 million. Nevertheless, the company’s solid operational performance generates enough funds to service the debt uninterruptedly. Interest expense in the first nine months of 2013 reduced 45.8% year over year to $1.09 million. This will, however, increase with the issuance of the new debt.
Moody’s Investors Service, the credit rating wing of Moody’s Corporation (MCO - Analyst Report) has assigned this debt issuance a “Baa2” rating with a stable outlook. The ratings came on the back of ProAssurance’s strong market position, robust operating profitability and claims handling capacity. Other strengths that contributed to the rating were the high quality investment portfolio and reserve position. As per Moody’s, the above issuance will increase ProAssurance’s financial leverage to about 10% on a proforma basis.
In Jul 2013, another insurer, American Equity Investment Life Holding Co. (AEL - Snapshot Report) offered 6.625% senior unsecured notes worth $400 million with maturity scheduled for Jul 15, 2021.
ProAssurance carries a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include Navigators Group Inc. (NAVG - Snapshot Report) and American Equity. While Navigators Group carries a Zacks Rank #1 (Strong Buy), American Equity carries a Zacks Rank #2 (Buy).