) newly issued $300 million worth of 3.58% Senior Notes, which will
mature in 2022, have been assigned a 'BBB+' rating whereas the
junior subordinated debentures have been given a 'BBB-' by
The rating agency has affirmed 'A-' as long-term ratings and
Insurer Financial Strength ("IFS") ratings of 'A+' to the parent
and its insurance subsidiaries. The rating outlook has, however,
been revised to Negative from Stable.
Torchmark will use $200 million from the proceeds to fund the
proposed acquisition of Family Heritage Life Insurance Company. The
company announced this acquisition last month and expects to close
it by the fourth quarter of 2012.
The company had originally planned to fund the purchase from
internal resources, but later decided to use it for financing debt
it. This will increase the leverage ratio to 29.0%, which in
Fitch's view is higher than the average levels.
The remaining funds from the Senior Notes offering will be
utilized for meeting the working capital requirements, which
include discharging of the $94.1 million in principal amount
outstanding of the company's 7.375% Notes that mature on August 1,
2013. On the other hand, the proceeds from the Junior Subordinated
Notes will be used to redeem all of the $120 million of 7.10% Trust
Originated Preferred Securities, maturing in 2046.
The ratings affirmation by Fitch takes into account the
company's operating fundamentals, which are in line with the
current ratings. The revision of ratings outlook to negative,
however, reflects the ratings agencies' concern over company's
increased financial leverage. On the flipside, Fitch stated that
the financial leverage will come down to more moderate levels since
the company's subsidiaries generate cash and remit it to the aren't
for discharge of debt.
Torchmark also compares favorably on the basis of pre-tax
operating return on assets as well as interest coverage. The
company also has adequate capital to support the current IFS rating
of 'A+.' Fitch estimates TMK's total adjusted capital and NAIC Risk
Based Capital ("RBC") to be $1.4 billion and 331%, respectively (at
June 30, 2012). Though the capital will somewhat deteriorate post
the issuance of notes, this step will not cause a ratings
The rating agency can, however, consider downgrading the ratings
if in case investment losses go beyond its expectations; risk based
capital falls below 290%, the company cannot bring back its
leverage position to more normal historical levels and interest
coverage ratio falls below 5x.
Standard & Poor's has assigned senior unsecured debt rating
of 'A' to senior unsecured notes due in 2022, and 'BBB+' to junior
subordinated debt due in 2052. Also Moody's Corp. (MCO) has rated
Torchmark's senior debt with 'Baa1' and junior subordinated debt
Torchmark competes with
) and currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on its shares.
ASSURANT INC (AIZ): Free Stock Analysis Report
TORCHMARK CORP (TMK): Free Stock Analysis
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