W. R. Berkley Corporation (WRB) will offer senior unsecured notes worth $350 million bearing 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 already taken.
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% over 2010.
Berkley’s fourth quarter core operating earnings of 58 cents per share 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, respectively, $2.60 and $2.83.
Berkley is witnessing stable retention and a general rate hike for the fourth successive quarter. We are of the view that the insurance pricing cycle has entered a positive territory and the magnitude of the price rise will increase going forward. 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.
However, rising loss trends and a low interest rate environment keep us on the sidelines.
We retain our Neutral recommendation on W.R. Berkley. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Based in Greenwich, Connecticut, W.R. Berkley Corp. is one of the premier commercial lines property casualty insurance providers.
To read this article on Zacks.com click here.
Zacks Investment Research
