Credit rating agencies have assigned ratings to the new debt
Principal Financial Group Inc.
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A.M. Best Co. provided debt ratings of 'a-' with a stable outlook.
Standard & Poor's Ratings Services (S&P) rated the notes
) assigned A3 rating with a stable outlook.
The senior unsecured notes will be issued in two tranches - 3.30%
senior unsecured notes worth $300 million due 2022 and 4.625%
senior unsecured notes worth $300 million due 2042.
The proceeds will either be deployed to repay $400 million 7.875%
senior unsecured notes due May 2014 or either in acquisitions or
We consider Principal Financial's debt refinancing strategy as a
prudent one, as notes with lower coupon rates are issued to help
redeem notes with higher coupon rates, thereby lowering interest
Principal Financial's debt to capital ratio at the end of the
second quarter was 16.3%, higher by 70 basis points over 2011 end
level. With the new issuance, the ratio is expected to deteriorate
by 430 basis points.
A.M. Best projects the financial leverage, following the issuance,
to remain below 20% with interest coverage hovering nearly 8x
earnings. On the other hand, S&P estimates debt leverage ratio
to be 23%, total financial leverage ratio to be 28%, and
fixed-charge coverage of 6.0x.
The ratings of A.M. Best account for Principal Financial's
improving investment portfolio and its various revenue channels. It
also positively views the company's strong foothold in the U.S.
defined contribution plan market, wide spread distribution
channels, persistent growth in global operations and significant
cash balance. However, the impact of the low interest rate
environment on spread-based product lines concerns the rating
Recently, A.M. Best provided a debt rating of 'bb' with stable
outlook to the upcoming issuance of $250 million senior secured
notes due 2020 of
CNO Financial Group Inc.
). In July, A.M. Best conferred a rating of 'a-' on senior debt,
'bbb+' on subordinated debt and 'bbb' on preferred stock of
) and a debt rating of 'a-' to the newly issued $250 million 2.65%
senior unsecured notes due 2017 of
We have a Neutral recommendation on Principal Financial Group. The
quantitative Zacks #4 Rank (short-term Sell rating) for the company
indicates downward pressure on the shares over the near term.