On Jun 4, the Fitch rating agency upgraded the long-term outlook for Lincoln National Corp. (LNC) to positive from negative, given the company’s improvement in liquidity, a solid balance sheet and strong growth fundamentals. Also, Fitch revised its outlook on Lincoln’s insurance subsidiaries to stable from negative, affirming its insurer financial strength (IFS) rating at “A+”.
Accordingly, Fitch asserted its long-term issuer default rating (IDR) of “BBB+” on Lincoln. Additionally, the company’s senior debt securities were affirmed at “BBB” while junior subordinated debt securities were affirmed at “BB+” and commercial paper was asserted at “F2″.
In February 2010, Fitch had reiterated its negative outlook on the company based on Lincoln’s asset and refinancing risk. However, the rating agency believed that Lincoln has the potential for improving its cash position to $1.1 billion and bolstering its capital position, which was estimated at 450% of NAIC risk-based capital.
Besides, on May 27, Moody’s Investors Service of Moody’s Corp. (MCO) revised its outlook on Lincoln and its operating subsidiaries to stable from negative.
Nevertheless, the current upgrade follows from the cyclic review of Lincoln ’s fundamentals, which paved the way for a long-term, optimistic outlook from Fitch. Particularly, Lincoln’s attainment of a financing solution for its life insurance operations by securing a $2 billion bank credit facility, on Wednesday, provided Fitch with the much needed assurance that the company is taking positive measures in order to improve its long-term capital and operating leverage.
While the new credit facility will replace the current credit facility that was scheduled to mature in the first quarter of 2011, the new credit amount will be used to issue letters of credit worth 1.5 billion with a maturity in 2015 and the remaining $0.5 billion with a maturity time of 364 days. By securing the credit facility, Lincoln has established a long-term solution to finance its statutory reserves, thereby attaining additional capital buffer.
Moreover, Lincoln remains on track with its Troubled Asset Relief Program (TARP) loan repayment and now expects to pay back the U.S. Treasury before the second half of 2010. Previously, the company estimated the loan to be repaid by the second half of 2010 or the first half of 2011 after strengthening its reserves level. This is a major turning point that reflects Lincoln’s ability to rebound with the gradual market recovery and generate long-term growth through its defined contribution operations.
Overall, the rating upgrades validate Lincoln’s disciplined capital management that helped the company weather the storm of the global economic downturn while also generating healthy earnings and growth from its core operations during the critical period that lasted over the last several quarters. We believe Lincoln’s business fundamentals, sale of Lincoln UK and Delaware, a reduction of its common stock dividend and other cost-saving initiative bode well for long-term growth.
Accordingly, Fitch asserted its long-term issuer default rating (IDR) of “BBB+” on Lincoln. Additionally, the company’s senior debt securities were affirmed at “BBB” while junior subordinated debt securities were affirmed at “BB+” and commercial paper was asserted at “F2″.
In February 2010, Fitch had reiterated its negative outlook on the company based on Lincoln’s asset and refinancing risk. However, the rating agency believed that Lincoln has the potential for improving its cash position to $1.1 billion and bolstering its capital position, which was estimated at 450% of NAIC risk-based capital.
Besides, on May 27, Moody’s Investors Service of Moody’s Corp. (MCO) revised its outlook on Lincoln and its operating subsidiaries to stable from negative.
Nevertheless, the current upgrade follows from the cyclic review of Lincoln ’s fundamentals, which paved the way for a long-term, optimistic outlook from Fitch. Particularly, Lincoln’s attainment of a financing solution for its life insurance operations by securing a $2 billion bank credit facility, on Wednesday, provided Fitch with the much needed assurance that the company is taking positive measures in order to improve its long-term capital and operating leverage.
While the new credit facility will replace the current credit facility that was scheduled to mature in the first quarter of 2011, the new credit amount will be used to issue letters of credit worth 1.5 billion with a maturity in 2015 and the remaining $0.5 billion with a maturity time of 364 days. By securing the credit facility, Lincoln has established a long-term solution to finance its statutory reserves, thereby attaining additional capital buffer.
Moreover, Lincoln remains on track with its Troubled Asset Relief Program (TARP) loan repayment and now expects to pay back the U.S. Treasury before the second half of 2010. Previously, the company estimated the loan to be repaid by the second half of 2010 or the first half of 2011 after strengthening its reserves level. This is a major turning point that reflects Lincoln’s ability to rebound with the gradual market recovery and generate long-term growth through its defined contribution operations.
Overall, the rating upgrades validate Lincoln’s disciplined capital management that helped the company weather the storm of the global economic downturn while also generating healthy earnings and growth from its core operations during the critical period that lasted over the last several quarters. We believe Lincoln’s business fundamentals, sale of Lincoln UK and Delaware, a reduction of its common stock dividend and other cost-saving initiative bode well for long-term growth.
Read the full analyst report on “LNC”
Read the full analyst report on “MCO”
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