In a concerted effort to fortify its financials, AFLAC Inc. (AFL) has increased the size of its debt issuance. The company said that it has priced senior unsecured notes worth $250 million. This follows a $400 million offering that was issued on February 10, 2012.
The $250 million long-term unsecured notes, due in 2017, will be issued at a price of $103.105. They bear a coupon rate of 2.65% with yield of 1.932%. The proceeds from the issue of this debt will be used to finance the company’s daily operations. Additionally, it might be used to augment the capital position of Aflac’s subsidiaries.
According to a Reuters report, Morgan Stanley (MS) is the bookrunning manager for the sale of these notes. Following the news, Aflac’s shares gained 5.3% over last Thursday’s closing price of $41.48.
A.M. Best Co. conferred a rating of “a-” to the senior unsecured notes issued by Aflac, with a stable outlook. The rating agency has not changed the existing issuer credit and debt ratings. It expects the company’s interest coverage to remain over 10x and financial leverage to stay below 25%.
The rating comes on the back of the company’s leading position in both Japan and the U.S., further strengthened by growth in sales, improved earnings and satisfactory risk-adjusted capital ratios maintained since 2011. However, certain impairments in Aflac’s investment portfolio continue to blemish the positives.
Aflac recently announced its second quarter 2012 operating earnings per share of $1.61, which came in line with the Zacks Consensus Estimate, but surpassed the year-ago quarter’s earnings of $1.55. Operating earnings climbed 3.9% year over year to $755 million. A stronger yen/dollar exchange rate boosted the operating earnings by 1 cent per share.
The company seems to be in a formidable position currently and is well prepared to face its competitors such as Unum Group (UNM) and Employers Holdings Inc. (EIG).
Both Unum and Employers Holdings are slated to release their second quarter earnings on August 1 and August 7, respectively. According to the Zacks Consensus Estimate, Unum is expected to report operating earnings of 76 cents a share, while Employers Holdings is projected to report 3 cents per share.
Aflac currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain a long-term Neutral recommendation on its shares.
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