Business & Finance
Business and Finance
Business and Finance
Thu, October 28, 2010
Wed, October 27, 2010 Fitch Rates Traveler's Senior Unsecured Notes Issuance 'A'
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings assigned an 'A' rating to The Travelers Companies, Inc.'s (NYSE: TRV) issuance of $500 million of 3.9% senior unsecured notes due 2020 and $750 million of 5.35% senior unsecured notes due 2040. In addition, Fitch Ratings has affirmed its ratings on TRV as follows:
--Issuer Default Rating (IDR) at 'A+';
--Senior unsecured notes at 'A';
--Subordinated notes at 'BBB+';
--Insurer Financial Strength (IFS) on insurance company subsidiaries at 'AA'.
See the full list of rating actions below. The Rating Outlooks are Stable.
Fitch's ratings on TRV reflect the company's strong competitive position in the U.S. property/casualty insurance market, solid and stable earnings, moderate financial leverage and strong interest coverage. Partially offsetting these factors are competitive market conditions in the company's key business lines that reduce profitable growth opportunities, and concerns about the municipal bond market given the company's focus on that asset class.
The ratings on the new issuance are equivalent to Fitch's ratings on TRV's outstanding senior unsecured notes. Proceeds from the issuance will be used to fund the tender offer for any or all the $1 billion outstanding 6.25% fixed-to-floating rate junior subordinated debentures due 2067. Proceeds may also be used for general corporate purposes and to pay maturing debt. TRV has $250 million of 5.375% senior unsecured notes maturing June 15, 2012 and $500 million 5.0% senior unsecured notes maturing March 15, 2013.
Fitch calculates TRV's Sept. 30, 2010 debt-to-capital ratio, including the planned senior unsecured issue on a pro forma basis, at roughly 23% (equity-credit adjusted). From Fitch's perspective the tender offer for the $1 billion junior subordinated debt changes the effective maturity date to less than five years. Thus, consistent with Fitch's Equity Credit for Hybrids rating methodology this security will receive class A or zero equity credit for this security. Prior to the tender offer the company was receiving 75% equity credit (class D) for this security.
Fitch views this as a moderate amount of financial leverage for a company with TRV's cash flow and earnings profile. Travelers' management has a targeted debt-to-total capital range of 15%-25%. Travelers' earnings guidance for 2010 contemplates $1 billion to $1.6 billion of share repurchases which Fitch believes can be absorbed without resulting in a meaningful increase in financial leverage.
TRV's recent operating earnings-based interest coverage was 11 times (x) through the first nine months of 2010 and pro forma interest coverage including the new issuance would be 9.5x. Fitch's expectation is that interest coverage will continue to be near the current level, which is consistent with the rating category.
Fitch believes that TRV's liquidity profile is strong. The company had $2.8 billion of short-term securities at the holding company at Sept. 30, 2010 and its regulated operating company subsidiaries can pay nearly $3.5 billion, or greater than 8x pro forma interest expense.
Fitch considers TRV's operating fundamentals and trends to be highly stable; thus, the company would have to experience some form of negative 'tail-event' or change in strategic direction to put downward pressure on the its current ratings. Conversely, at TRV's current comparatively high ratings levels and given Fitch's views about publicly traded companies' sensitivity around managing capital, Fitch believes that upward pressure on the company's ratings is unlikely.
Fitch has assigned the following ratings:
The Travelers Companies, Inc.
--3.9% senior notes due Nov. 1, 2020 at 'A';
--5.35% senior notes due Nov. 1, 2040 at 'A'.
Fitch has affirmed the following ratings with a Stable Outlook:
The Travelers Companies, Inc.
--IDR at 'A+';
--Short-term IDR at 'F1'
--7.415% senior notes due Aug. 23, 2010 at 'A';
--5.375% senior notes due June 15, 2012 at 'A';
--5.5% senior notes due Dec. 1, 2015 at 'A';
--6.25% senior notes due June 20, 2016 at 'A';
--5.75% senior notes due Dec. 15, 2017 at 'A';
--5.8% senior notes due May 15, 2018 at 'A';
--5.9% senior notes due June 2, 2019 at 'A';
--6.75% senior notes due June 20, 2036 at 'A';
--6.25% senior notes due June 15, 2037 at 'A';
--6.25% junior subordinated debentures due March 15, 2067 at 'BBB+';
--$800 million commercial paper (CP) program at 'F1'.
MMI Capital Trust I
--7.625% Trust preferred due Dec. 15, 2027 at 'BBB+'.
USF&G Capital Trust I
--8.5% Trust preferred due Dec. 15, 2045 at 'BBB+'.
USF&G Capital Trust III
--8.312% Trust preferred due Dec. 15, 2046 at 'BBB+'.
Travelers Insurance Group Holdings Inc.
--IDR at 'A+';
--7.75% senior notes due April 15, 2026 at 'A'.
Travelers Property Casualty Corp.
--IDR at 'A+';
--5% senior notes due March 15, 2013 at 'A';
--6.375% senior notes due March 15, 2033 at 'A';
Fitch has affirmed the IFS ratings of the following members of the Travelers Inter-company Pool at 'AA' with a Stable Outlook:
--St. Paul Fire and Marine Insurance Company
--The Travelers Indemnity Company
--Travelers Casualty and Surety Company
--The Phoenix Insurance Company
--The Standard Fire Insurance Company
--United States Fidelity and Guaranty Company
--Travelers Casualty Insurance Company of America
--Farmington Casualty Company
--The Automobile Insurance Company of Hartford, Connecticut
--The Travelers Indemnity Company of Connecticut
--The Charter Oak Fire Insurance Company
--St. Paul Surplus Lines Insurance Company
--The Travelers Indemnity Company of America
--St. Paul Protective Insurance Company
--Travelers Casualty Company of Connecticut
--Travelers Commercial Casualty Company
--Travelers Commercial Insurance Company
--St. Paul Mercury Insurance Company
--Travelers Property Casualty Company of America
--Travelers Property Casualty Insurance Company
--Athena Assurance Company
--St. Paul Medical Liability Insurance Company
--TravCo Insurance Company
--Travelers Excess and Surplus Lines Company
--The Travelers Home and Marine Insurance Company
--Travelers Personal Security Insurance Company
--Travelers Personal Insurance Company
--Discover Property & Casualty Insurance Company
--Discover Specialty Insurance Company
--Fidelity and Guaranty Insurance Underwriters, Inc.
--St. Paul Guardian Insurance Company
--American Equity Specialty Insurance Company
--Northfield Insurance Company
--Northland Insurance Company
--Northland Casualty Company
In addition, Fitch has affirmed the IFS ratings of the following members of the Travelers Group at 'AA' with a Stable Outlook:
--Fidelity and Guaranty Insurance Company
--Select Insurance Company
--St. Paul Fire and Casualty Insurance Company
--The Travelers Lloyds Insurance Company
--Travelers Lloyds of Texas Insurance Company
--First Floridian Auto and Home Insurance Company
--First Trenton Indemnity Company
--Travelers Auto Insurance Co. of New Jersey
--Travelers Casualty and Surety Company of America
--Gulf Underwriters Insurance Company
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Aug. 13, 2010;
--'Non-Life Insurance Rating Criteria' March 24, 2010;
--'Fitch's Approach to Rating Insurance Groups' March 24, 2010;
--'Insurance Industry Global Notching Methodology and Recovery analysis' Dec. 29, 2009;
--'Rating Hybrid Securities', Dec. 29, 2010.
Applicable Criteria and Related Research:
Rating Hybrid Securities
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086 ]
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369 ]
Insurance Industry: Global Notching Methodology and Recovery Analysis
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114 ]
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