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Principal's Notes Rated by Fitch


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Fitch Ratings conferred 'A-' rating to the latest notes issued by Principal Financial Group, Inc. (PFG - Analyst Report), as per Reuters.

The senior unsecured notes were issued in two tranches – 10 years 3.30% senior unsecured notes worth $300 million and 30 years 4.625% senior unsecured notes worth $300 million.

Fitch expects the proceeds to either be deployed for repaying $400 million 7.875% senior unsecured notes due May 2014 or else in acquisitions or organic growth.

Earlier this month, A.M. Best Co. provided debt ratings of “a-” with a stable outlook to these notes. Standard & Poor's Ratings Services (“S&P”) rated the notes 'BBB+', while Moody’s Corp. (MCO) assigned A3 rating with a stable outlook.

Strong ratings from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market.

The rating agency expects that the financial leverage ratio will not go beyond 25% due to the issuance. The financial leverage ratio was 16.7% as on June 30, 2012 and will increase by 640 basis points following the issuance, well within the rating agency’s criteria.

Fitch stated that the long-term Issuer Default Rating of Principal Financial will not be influenced due to this rating assignment.

As the company is issuing notes with lower coupon rates to help redeem notes with higher coupon rates, interest expenses will be lowered, thereby favorably impacting net margin.

We currently have a Neutral recommendation on Principal Financial Group. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term. Lincoln National Corporation (LNC - Analyst Report), which competes with Principal Financial, currently holds a Zacks #2 Rank (short-term Buy rating) indicating slight boost on the shares over the near term.