The recently issued 5.75% senior unsecured notes worth $250 million of Unum Group (UNM - Free Report) , have been rated “bbb” by A.M. Best. The outlook is stable. The notes are scheduled to mature in 2042.
The ratings signify Unum Group’s dominant market presence, diverse business mix, continued operating profitability, and solid financial flexibility and strong risk-adjusted capitalization.
Standard & Poor's Ratings Services (“S&P”), another rating agency, assigned “BBB-” ratings to the senior note. The rating came on the back of Unum's solid foothold in group and voluntary products coupled with steady operational results, conventional investment portfolio, and solid capitalization.
However, potential increase in disability claims and challenges faced by the company dwarf the positives.
S&P believes the new issue will immediately augment Unum Group’s liquidity and financial flexibility in the near term. It expects the company to maintain EBITDA interest coverage at more than 10x, and debt-to-total capital ratio to remain below 25%.
S&P maintains counterparty credit rating of “BBB-” with a positive outlook for Unum Group.
Another credit rating agency, Moody’s Corp. (MCO - Free Report) , assigned “Baa2” rating with a stable outlook.
Fitch Ratings intends to assign “BBB” rating to the notes. It, however, affirms Issuer Default Rating (IDR) at 'BBB+' with a stable outlook for Unum Group.
The debt-to-capital ratio at June 30, 2012 was 23%. With this issuance, the ratio is expected to increase by 200 basis points. The proceeds from the issue are to be deployed to fund debt maturity scheduled in late 2015 as well as for general corporate purposes.
Recently, senior unsecured debt and subordinated debt of Cigna Corp. (CI - Free Report) , has been bestowed with “bbb” and “bb-” ratings, respectively by A.M. Best. The preferred stock was assigned with “bb+” rating. Cigna closely competes with Unum Group. All the ratings carry a stable outlook.
We retain our Neutral recommendation on Unum 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.