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According to Reuters, Fitch Ratings has affirmed the issuer default ratings (“IDR”) at ‘BB-’, senior secured notes at ‘BB’ together with other ratings on the existing credit position of CNO Financial Group Inc. (CNO - Analyst Report). The rating agency has also kept the ratings of the company’s subsidiaries. The outlook for all the ratings is stable.
The rating affirmations come on the heels of the company’s recent decision to recapitalize the holding company. The rating agency believes that it is a favorable decision for CNO Financial as it will lead to an advancement of its financial profile partly offset by increased expenditure from repurchasing a part of its convertible securities.
The ratings are subjected to an upgrade, provided the company continues to earn a decent free income, restricts its interest coverage ratio at 6x and NAIC RBC at 350% and refinances its senior notes in order to create a debt profile that would be at par with its peer life insurance companies.
However, the ratings will be downgraded if NAIC RBC ratio falls below 300% and the operating leverage exceeds 20x, the overall operating performance of the company falls, financial leverage exceeds 30% and TFC goes beyond 0.65x.
In a separate development, Moody’s of Moody's Corp. (MCO - Analyst Report) rated the senior notes of CNO Financial at Ba3 with a stable outlook.
Another rating agency, Standard & Poor's Ratings Services has assigned its issue level rating at 'B+' to CNO Financial’s $250 million senior secured notes scheduled to mature in 2020. Also, it has conferred a preliminary 'B+' issue-level rating to the $250 million senior secured term loan due in 2016 and to the $400 million senior secured term loan that will mature in 2018. The rating agency rated the proposed $50 million senior secured revolving-credit facility of the company at preliminary 'B+'.
Following the news, CNO Financial’s shares gained 5.5% (or 49 cents) to close at $9.45 yesterday.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining credit worthiness in the market. We believe, strong ratings scores will help CNO Financial retain investor confidence and help it write more businesses going forward, thereby boosting its results.
In July, Torchmark Corp. (TMK - Analyst Report), a close competitor of CNO Financial , received ratings of “a-” on senior debt, “bbb+” on subordinated debt and “bbb” on preferred stock from A.M. Best. Another rating agency, Moody’s, affirmed the insurer financial strength (“IFS”) rating at ‘A1’ for Torchmark’s subsidiary, Liberty National Life Insurance Company. The company’s senior debt rating has also been affirmed at ‘Baa1’ with a stable outlook.
CNO Financial carries a Zacks #2 Rank that translates into a short-term Buy rating. Its peer, Torchmark holds a short-term Zacks #3 Rank (Hold).