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A.M. Best Co. conferred a debt rating of “bbb+” to 4% $325 million senior notes due 2017, 5.12% $800 million senior notes due 2022 and 6.625% $425 million senior notes due 2042 to be issued by The Hartford Financial Services Group, Inc. ( HIG - Analyst Report ) .
Subsequently, the rating agency also allotted a debt rating of “bbb-” to 7.875% $600 million fixed-to-floating rate junior subordinated debentures due 2042.
However, presently all the ratings are placed under review.
Another rating agency, Fitch Ratings has also allotted a “BBB-” to the senior notes while conferring a “BB” to the junior subordinated debentures.
Standard & Poor's Ratings Services, yet another rating agency, provided a “BBB-” to the senior notes and “BB” to the junior subordinated debentures.
The junior debentures, till April 15, 2022 will have a fixed rate of 7.875% interest, thereafter the junior debentures will bear quarterly interest equal to the three-month LIBOR rate, plus 5.596%. These debentures can be redeemed after April 15, 2022, in whole or in part, subject to principal plus any accrued and unpaid interest amount payment. However, if the debentures are redeemed in part, there has to be a minimum of $25 million aggregate principal amount remaining outstanding. Also, the debenture may be redeemed fully prior to April 15, 2022.
The proceed from the issuances will be deployed to buyback outstanding 10% fixed-to-floating rate junior subordinated debentures due 2068 from Germany’s largest insurer, Allianz SE. Any amount remaining from the proceeds, if any at all, will be utilized for general corporate purposes. Hartford will use $2.125 billion to buyback these debentures.
However, the debenture buyback is dependant on the consent of the holders of Hartford’s 6.1% senior notes due 2014. The burden of interest is also expected to lower, thereby improving the fixed coverage ratio.
Following the debt issuance and buyback of warrants and debenture, Hartford’s debt to capital ratio will become 22%.
Hartford also intends to utilize $300 million to buyback outstanding Series B and C warrants. This move will thereby reduce the outstanding balance under Hartford’s $500 million share repurchase program to $106 million.
We have a Neutral recommendation on Hartford Financial Services Group. 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 Connecticut, the Hartford Financial Services Group is one of the largest multi-line insurance and investment companies in the country, providing investment products, individual life, group life and group disability insurance products, and property and casualty insurance products in the U.S. The company competes with American International Group, Inc. ( AIG - Analyst Report ) and Berkshire Hathaway Inc. ( BRK.A - Snapshot Report ) .
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