To utilize its excess cash, CNO Financial Group, Inc. (CNO) has planned to make a $50 million prepayment of its senior secured credit facility.

CNO Financial had borrowed $375 million under the senior secured credit facility. After making the voluntary payment, the outstanding principal balance of the facility will be $325 million and the next scheduled principal payment under the facility will be due September 30, 2012.

In December 2010, CNO Financial planned to sell $300 million of senior secured notes due in 2017 and agreed to borrow a new $325 million credit line, which would mature in 2016, replacing the $652 million senior secured facility due 2013, to pay down the existing senior credit line.

However, the deal size was reduced and the company agreed to sell $275 million of senior secured credit notes, due in 2018. Further, to retire the existing credit, CNO Financial borrowed $375 million under the new senior secured credit facility, and used the net sale proceeds along with available cash of the company.

Later, the rating agency A.M. Best Co. upgraded the issuer credit ratings (“ICR”) to “bb-” from “b-” and the existing senior debt rating to “bb-” from “b-” for CNO Financial, along with the financial strength rating (“FSR”) to B+ (Good) from B (Fair) and ICR to “bbb-” from “bb” for CNO Financial’s operating subsidiaries – Bankers Life and Casualty Company, Bankers Conseco Life Insurance Company, Colonial Penn Life Insurance Company and Washington National Insurance Company (“WNIC”). Further, A.M. Best has assigned a debt rating of “bb-” to the new senior secured notes of CNO Financial.

Besides A.M. Best, the rating agency Moody’s, a unit of Moody’s Corporation (MCO) also raised its ratings on CNO Financial’s senior secured credit facility and senior secured notes to “B1” from “B2.” The rating agency also raised its rating on CNO Financial’s senior unsecured convertible debentures to “B2” from “Caa1.”, with the completion of the debt refinancing plan. The outlook remains stable for the company and its subsidiaries.

We believe that the improved earnings and strong financial position have enabled CNO Financial to make this prepayment and the debt extension is expected to increase CNO Financial’s capital flexibility and the ability to buy back stock. Moreover, it will also help the company effectively utilize funds and tap growth opportunities and enhance operating leverage.

Currently, CNO Financial carries a Zacks #2 Rank, which translates into a short-term Buy recommendation, indicating a slight upward pressure on the stock over the near term.

 
CNO FINL GRP (CNO): Free Stock Analysis Report
 
MOODYS CORP (MCO): Free Stock Analysis Report
 
Zacks Investment Research