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Progressive (PGR) Prices Senior Notes Worth $850 Million

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The Progressive Corporation (PGR - Free Report) recently priced 4.125% $850 million senior notes, with maturity scheduled on Apr 3, 2047. The notes will be issued at 99.879% of face value.

The company plans to deploy the net proceeds of the offering to redeem or repay its 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures, which are expected to mature in 2067. Out of this, $563.7 million in principal amount are currently outstanding. The company can redeem the debentures on or after Jun 15, 2017, at a price equal to 100% of the principal amount plus accrued and unpaid interest to the redemption date. The remaining proceeds, if any, will be used for generate corporate purposes.

Progressive displays its prudence by issuing debentures amid a low interest rate environment. Though the Fed has recently raised rates – two consecutive hikes in the last two quarters, given the still low interest rate environment – the company is consciously making efforts to reduce its interest burden on borrowings. In turn, these efforts will facilitate margin expansion.

The Zacks Rank #1 (Strong Buy) property and casualty (P&C) insurer’s solid liquidity position, excellent financial strength and operational strength should enable it to service debt uninterruptedly, maintaining its creditworthiness.

Though the company could lower its interest burden, its debt capital ratio will deteriorate after the new issuance.

Concurrently, Moody’s Investor Service, an affiliate of Moody’s Corporation (MCO - Free Report) assigned A2 rating with stable outlook to the recent issued senior notes.

Shares of Progressive gained 10.62% year to date, significantly outperforming the Zacks categorized Property and Casualty industry’s increase of 2.55%. We believe that the company’s solid operational performance, strategic initiatives as well as robust capital and liquidity position will continue to drive the stock higher in the future.



Stocks to Consider

Investors interested in other stocks from the same space can consider American Financial Group, Inc. (AFG - Free Report) and Argo Group International Holdings, Ltd. . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial offers P&C insurance products in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.45%.

Argo Group International Holdings underwrites specialty insurance and reinsurance products in the P&C market worldwide. The company delivered positive surprises in all of the last four quarters with an average beat of 36.54%.

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