W.R. Berkley Corp. (WRB) recently issued $350 million senior unsecured notes, which have been assigned a debt rating of “a-” by the rating agency A.M. Best Co. The rating agency holds a stable outlook over its rating. These are investment grade ratings and signal the rating agency’s confidence in the company’s ability to meet its senior obligations.
The notes bear a coupon of 4.625%, with maturity scheduled in 2022. Berkley intends to deploy the proceeds from the offering for general corporate purposes, including payment of debts.
Berkley ended 2011 with a total debt balance of $1.7 billion, almost flat with the year-ago level. However, debt-to-capital ratio was 30.3% at year end, lower by 170 basis points from 2010 end.
The issuance of $350 million of debt nonetheless will not bring any material change to the debt-to-capital ratio.
However, the company has to dish out an additional $16.2 million interest annually to service the debt. In 2011, the company incurred an interest expense of $112.5 million, up 5.2% from 2010.
Berkley’s balance sheet remains strong on the back of its sound investment philosophy coupled with effective capital management as well as its conservative reserve practices.
Berkley also continues to be disciplined with its capital management. It has historically returned a substantial portion of its net earnings to shareholders through share repurchases and dividends.
The company remains uniquely poised to benefit from the expected turn in the insurance pricing cycle. The company has started a number of new units since 2006, most of which are now fully operative.
Berkley’s investments in a number of start-ups during the past four years will enable it to take greater advantage of the improved market scenario. Its International business is another area, which will fuel long-term earnings growth.
Berkley also gave a solid earnings performance for the year 2011. Its fourth quarter as well as fiscal year 2011 core operating earnings came in ahead of the Zacks Consensus Estimate. The earnings outperformance came on the back of higher net premium written, partially offset by lower investment income.
The current Zacks Consensus Estimate for first quarter 2012 is 66 cents per share. For full years 2012 and 2013, the Zacks Consensus Estimates are $2.60 and $2.83 per share, respectively.
Berkley 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. Its competitors Chubb Corp. (CB), Travelers Companies (TRV) and Assurant Inc. (AIZ) carry a Zacks #3 Rank and a long-term Neutral rating.
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