Business & Finance
Business and Finance
Business and Finance
Thu, September 9, 2010
Wed, September 8, 2010 Fitch Expects to Rate Unum Group's New Senior Debt Issue 'BBB'; Outlook Stable
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings expects to assign a 'BBB' rating to Unum Group Inc.'s (NYSE:UNM) planned $400 million 10-year senior notes issuance. At the same time, Fitch has affirmed all of UNM's existing ratings (see complete list of ratings below). The Rating Outlook is Stable.
UNM intends to use a portion of the net proceeds from the offering to pre-fund $225 million of senior notes maturing in March 2011 and the remainder for general corporate purposes.
Today's rating action recognizes that UNM's current financial leverage metrics remain within Fitch's expectation for the rating, including Fitch's equity adjusted leverage near 20%. Fitch estimates pro forma equity adjusted leverage will increase to 19.6% from 16.3% at June 30, 2010. Fitch considers UNM's debt service capacity as being adequate for the rating level and expects run-rate, GAAP earnings based interest coverage to range from 9 times (x) to 12x.
The rating rationale includes UNM's operating performance which has remained strong despite a weak global economy; conservative investment portfolio; solid capital and liquidity at both the insurance subsidiary and holding company levels; the company's leadership position in the U.S. employee benefits market; and increased diversification from the United Kingdom and worksite products.
The Stable Outlook reflects Fitch's belief that while UNM's premium growth will be challenged throughout the remainder of 2010, the company will continue to produce stable operating results across its targeted segments. Additionally, Fitch believes statutory net operating gains will cushion capitalization from potential credit-related investment losses and continue to support improvements achieved in holding company financial flexibility.
Key rating drivers for UNM's ratings that could lead to an upgrade include:
--Improved general economic conditions including a growth in employment, salaries and disposable income which enable UNM to achieve its long-term target of 6%-8% annual earnings growth on its core operations.
--GAAP earnings-based interest coverage over 12x-14x and statutory maximum allowable dividend coverage of interest expense at 8x.
--Sustained maintenance of operating company capital relative to current target of 375%-400% U.S. risk-based capital, target 225% of UK Pillar I capital and run-rate financial leverage meaningfully below management's targeted 25% level.
Key rating drivers for UNM's ratings that could lead to a downgrade include:
--Deterioration in financial results that includes an increase in the U.S. group disability benefit ratio over 87%; GAAP earnings-based interest coverage falling below 4x and statutory maximum allowable dividend interest expense coverage falling below 5x.
--A reserve strengthening charge greater than $200 million;
--Holding company cash falls below management's target of approximately 1x fixed charges (interest expense plus common stock dividend), or roughly $270 million.
--A sustained drop from the company's short-term target 375%-400% U.S. risk-based capital and long-term target of 300% U.S. risk-based capital, target 225% of UK Pillar I capital and an increase in financial leverage above management's targeted 25%.
Fitch expects to assign the following rating:
Unum Group Inc.
--$400 million 5.625% senior notes due 2020 at 'BBB'; Outlook Stable.
Fitch affirms the following ratings:
Unum Group Inc.
--Issuer Default Rating (IDR) at 'BBB+';
--7.125% senior notes due Sept. 30, 2016 at 'BBB';
--7.625% senior notes due March 1, 2011 at 'BBB';
--7% senior notes due July 15, 2018 at 'BBB';
--7.25% senior notes due March 15, 2028 at 'BBB';
--6.75% senior notes due Dec. 15, 2028 at 'BBB';
--7.375% senior notes due June 15, 2032 at 'BBB'.
Provident Financing Trust I
--7.405% junior subordinated capital securities at 'BB+'.
UnumProvident Finance Company plc,
--6.85% senior notes due Nov. 15, 2015 at 'BBB'.
Unum Group members:
Unum Life Insurance Company of America
Provident Life & Accident Insurance Company
Provident Life and Casualty Insurance Company
The Paul Revere Life Insurance Company
The Paul Revere Variable Annuity Insurance Company
First Unum Life Insurance Company
Colonial Life & Accident Insurance Company
--IFS at 'A'.
Additional information is available at '[ www.fitchratings.com ]'
Related Research:
--'Insurance Rating Methodology' (Aug. 16, 2010);
--'Life Insurance Rating Methodology' (March 24, 2010).
Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]
Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285 ]
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