) announced the sale of long-term subordinated notes worth $450
million, thereby inflating it from the initial plan to issue notes
worth $250 million. Additionally, a green shoe provision gives the
company an option to increase the current size by 15% or $67.5
Accordingly, the $450 million 40-year junior subordinated notes
are issued at a price of $100.00 each, bearing both - a coupon rate
and a yield of 5.5%. These notes are dated to mature on September
15, 2052. Interest on the notes will be paid semi-annually, in
equal instalments, with the first pay dated on December 15,
The amount of the proceeds is expected to inject ample liquidity
by utilizing funds for general corporate and capital purposes.
Meanwhile, Aflac appointed
JP Morgan Chase & Co.
Wells Fargo & Co.
Goldman Sachs Group Inc.
) as the joint book-running managers for the sale. The
above-mentioned set of notes carry a rating of "Baa1", "bbb+" and
"BBB" from Moody's Investor Service of
), A.M. Best Co. and Standard & Poor's (S&P),
Further, the rating agencies are contented with Aflac's debt
structure, since following the latest notes sale, the company's
financial leverage is expected to be around 25% and its interest
coverage is projected be over 10x. Moreover, these $450 million
notes can be redeemed any time after September 2017 or once the tax
event has taken place. The outlook of most ratings agencies remains
However, S&P cast a negative outlook on Aflac's credibility,
based on the negative sovereign rating in Japan. All the ratings
agencies have also showcased concern regarding the mounting
impairment losses within the company's investment portfolio. This
also hampers the desired earnings growth.
Nevertheless, these ratings agencies have backed Aflac's
consistent sales growth in the U.S. and Japan, particularly from
individual guaranteed-renewable health and accident insurance
coupled with life insurance. Moreover, the company's strong capital
and surplus cash position is expected to mitigate balance-sheet
risks and provide liquidity cushion in the long run, as well as
return value to shareholders consistently. Hence, we continue to
retain our long-term Neutral stance on the stock, with a Zacks Rank
#3, implying a short-term Hold rating.
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