CNO Financial Group Inc.
) recently announced that it has repurchased approximately 5.62
million shares for $6.95 per share in the second quarter of 2012.
The quarterly repurchase has more than doubled from 2.44 million
shares bought back in the prior quarter. The repurchased shares
represented 2.4% of the outstanding shares at the end of the first
CNO Financial spent $39.3 million in aggregate for the buyback
in the second quarter, thus increasing the company's expenditure on
share repurchase for the first half of 2012 to $58.2 million. The
company repurchased 8.09 million shares at an average price of
$7.19 in the first half of 2012.
Additionally, CNO Financial prepaid $22 million on its
outstanding debt under the Senior Secured Credit Agreement, thereby
repaying the full amount scheduled on March 31, 2016, and a portion
of the repayment scheduled on December 31, 2015. Per the terms of
the agreement, the company is required to make principal prepayment
equal to the amount of outflow toward certain restricted payments
(which include share repurchases and divined payment), 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 16.9% as of
March 31, 2012, the company was required to prepay 50% of the
amount spent on share buybacks and dividend payment. The company
paid its first quarterly dividend of 2 cents per share on June 25,
Concurrently, CNO Financial announced a $100 million hike it its
share repurchase authorization to $172.1 million. This is the
second hike this year after it increased the authorization by $100
million in February. The company expects to spend $150-$170 million
on share repurchase during 2012. Outstanding shares as of June 29,
2012 stood at 234 million.
CNO Financial's robust capital position enables it to regularly
return value to shareholders through share buybacks, whereas the
repayment of the entire outstanding balance on the Senior Health
notes removed the restriction on dividend payment, allowing the
company to initiate a quarterly dividend policy in May this
Moreover, a strong cash flow will cushion the financial position
of CNO Financial from the impact of the cash outflows. The company
had a cash balance of $173.5 million as of March 31, 2012, while
the operating cash flow during the first quarter amounted to $78.2
The share repurchases and debt prepayment by CNO Financial will
likely have an incremental effect on its 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
The announcement was viewed positively by investors, leading to
a 3.7% rise in CNO Financial's share price to close at $7.80 on
Friday. The company competes with
Currently, CNO Financial carries a Zacks #3 Rank, which
translates into a short-term 'Hold' rating. We have a long-term
Neutral recommendation on the stock.
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