CNO Financial Group Inc. (CNO - Free Report) has announced the repurchase of approximately 2.44 million shares in the first quarter of 2012, representing a hike from 2.35 million shares bought back in the prior quarter. During the first quarter, the company spent $18.9 million in aggregate for the share buyback at an average price of $7.75 per share.
The company’s first quarter repurchase brings the total buyback under its $200 million share repurchase program roughly to 13.56 million shares at an average price of $6.54 per share. The total purchase price for the shares bought back since the commencement of the repurchase program in May 2011, amounts to $88.7 million.
Concurrently, CNO Financial also announced the prepayment of $9.4 million of the outstanding principal under its senior secured credit agreement. As per the terms of the agreement, the company is required to make principal prepayment equal to the amount of outflow toward certain restricted payments, including share repurchases, in case its debt-to-total capitalization ratio exceeds 17.5%.
However, if CNO Financial’s debt-to-total capitalization ratio stays between 12.5% and 17.5%, principal prepayment of 50% of such amount has to be made, while no mandatory principal prepayment is required when the ratio is below 12.5%. Consequently, with a debt-to-total capital ratio of 17.1% at the end of 2011, the company was required to prepay 50% of the amount spent on the share buybacks.
Separately, CNO Financial also announced the prepayment of the outstanding $50 million principal on its Senior Health Note, which is due in November 2013.
The senior secured principal prepayment during the first quarter partly covered the repayment scheduled for March 31, 2016. At present, CNO Financial has no repayment scheduled under the senior secured credit agreement until September 30, 2012, when it has to repay $10 million.
CNO Financial’s robust capital position enables it to regularly return value to shareholders through share buybacks, whereas a strong cash flow will likely cushion the financial position of the company from the impact of the cash outflows spurred by buybacks and debt repayments. The company had a cash balance of $436 million as of December 31, 2011, while the operating cash flow in 2011 amounted to $774.8 million.
The share repurchases and debt prepayment by CNO Financial is likely to have an incremental effect on the company’s book value and boost its future earnings per share. Moreover, the principal prepayment will reduce CNO Financial’s total cost of debt and debt-to-total capital ratio.
CNO Financial competes with AFLAC Inc. (AFL - Free Report) and Torchmark Corp. (TMK - Free Report) .Currently, the stock carries a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.