Last week, Fitch Ratings conferred a "BB" rating to the recently
announced senior secured notes of
CNO Financial Group Inc.
). Earlier last week, the company announced an increase in the size
of its offering of senior secured notes due 2020 to $275 million
from $250 million. The company also announced an interest of 6.375%
per annum on the senior notes, which will be payable on the first
day of April and October every year.
Concurrently, CNO Financial revealed that it might boost the
size of its new 6-year term loan facility to $425 million from $400
million. However, Fitch has not yet rated this term loan facility
since the terms and conditions are yet to be finalized. However,
the rating agency expects to assign ratings at par with those on
the current bank facility as the covenants in the new facility are
expected to be akin to the ones in the current facility.
Fitch expects an upward revision in ratings if CNO Financial
manages to consistently generate stable earnings after eliminating
special charges or sustains reported interest coverage ratio above
6x and NAIC risk-based capital above 350%. Further, if the company
maintains a larger cushion than required under the existing
covenant or if its debt profile improves following the refinancing
to match that of peers, then an upgrade is possible.
On the other hand, if CNO Financial faces weakening operating
results or a material rise in credit-related impairments in 2012 or
the combined NAIC risk-based capital ratio falls below 300% and
operating leverage rises above 20x, then a rating downgrade is
likely. Additionally, if the financial leverage and TFC rise beyond
30% and 0.65x, respectively, then Fitch may revise the ratings
Fitch expects CNO Financial's pro-forma financial leverage to
surge to 22% due to the recapitalization from 16.7% as of June 30,
2011. The company, which competes with
), carries a short-term Zacks #2 Rank (Buy).
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