Taking advantage of the ongoing low interest rates, auto and
home insurer -
) announced its intention to prepay some debt, which was
previously taken at higher rates, by raising funds at lower
Accordingly, Allstate aims to retire about $1.2 billion of debt
that it was scheduled to mature in 2013 and 2014. At the same
time, the company also intends to buy back some part of its $4.3
billion debt at a premium. In all, Allstate will redeem about
$3.0 billion of debt.
Additionally, funds for the debt repayment will be raised through
existing cash coupled with the issuance of some hybrid securities
and long-term debt. The issuance of new securities will contain
low interest rates, thereby reducing the cost of capital.
Moreover, the refinancing of debt will increase the portion of
equity in the capital, which will further strengthen the balance
sheet. The new finance arrangement will not only increase capital
flexibility but also expand the debt maturity profile to more
than 20 years. This leaves ample scope for investment in growth
activities in the near to intermediate term.
However, Allstate projects to incur some debt refinancing charges
in the second quarter of 2013, which may have some adverse impact
on the earnings, although an accurate range remains undisclosed.
Overall, the debt refinancing is expected to have insignificant
impact on earnings in the upcoming quarters. The share buyback
plan is also expected to remain intact.
Apart from debt refinancing charges, Allstate projected pre-tax
catastrophe loss of $216 million for the month of April, as
announced last week. Catastrophe losses had surged 38.6% to $359
million in the first quarter of 2013 as well. Such expenses weigh
heavily on the bottom line and negate the improvement in premiums
growth, thereby adversely impacting underwriting results. Hence,
management is focusing on proactive capital and risk management
Allstate carries a Zacks Rank #3 (Hold), while other
outperformers in the insurance sector include
Platinum Underwriters Holdings Ltd.
Axis Capital Holdings Ltd.
Montpelier Re Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ALLSTATE CORP (ALL): Free Stock Analysis
AXIS CAP HLDGS (AXS): Free Stock Analysis
MONTPELIER RE (MRH): Free Stock Analysis
PLATINUM UNDRWT (PTP): Free Stock Analysis
To read this article on Zacks.com click here.