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The Manufacturers Life Insurance Company , a subsidiary of  Manulife Financial Corporation (MFC - Analyst Report) proposed to issue subordinated debentures worth $504.5 (C$500) million. The debentures will bear a fixed/floating interest of 4.165% maturing on June 1, 2022.

For the first five years, the debenture will carry interest at a fixed rate of 4.165% and then at a rate of 2.45% over the three-month CDOR. The company intends to deploy the net proceeds for general corporate purposes.

At the end of the 2011, the company had $5.395 (C$5.503) billion in debt balance, lower than the year-ago level of $5.840 (C$5.841) billion. During 2011, the company’s interest expense, at $291 (C$288) million, was higher than $265 (C$273) million in the prior year.

The debt to capital ratio at 2011 end was 18.5%, lower than 19.5% at 2010 end. With this note offering, the debt level of the company will rise and the debt to capital ratio will increase by 120 basis points. The company will also have to incur a higher interest expense to service the debt.

During the fourth quarter, the company posted a net loss of $69.8 million, in contract with net profit of $1.8 billion in the prior-year quarter due to weaker insurance sales and a big write-down at its U.S. operation.

Manulife has achieved a great deal during the year in reducing potential equity markets and interest rates risk exposures along with minimizing existing risks. The company also made significant progress in diversifying its businesses, achieving growth in targeted areas and cultivating new revenue streams. However, Manulife’s capital position has suffered given the decline in the global equity markets and low bond yields.

We thus retain our Neutral recommendation on Manulife Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Headquartered in Toronto, Canada, Manulife Financial through its subsidiaries operates as a life insurance company. It also offers reinsurance services. The company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States.

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