Expanding its debt restructuring initiatives, on Thursday, Lincoln National Corp. (LNC) announced the closure of its bank credit facility worth $2 billion. This includes a 4-year credit agreement of $1.5 billion and a 364-day credit agreement of $500 million. While the new bank credit facility became effective from Jun 9, 2010, the company replaced the total credit line with the existing credit agreements that began in 2006 and dated to mature in the first quarter of 2011.
 
Accordingly, the 4-year agreement authorizes to issue letters of credit (LOC) and borrowings to finance any withdrawals under the LOC of up to $1.5 billion. However, this unsecured agreement is expected to be utilized mainly to provide LOC to support any life insurance reserves. Lincoln will incur annual fee charges of 1.375% on issued syndicated LOC along with a facility fee of 0.375% on the total obligation. The expiry date is set on June 9, 2014.
 
On the other hand, the 364-day agreement authorizes LOC, to issue or borrow for any withdrawal, of worth $500 million. This unsecured credit agreement is expected to be utilized for general business operations and is set to expire on June 8, 2011. Lincoln will incur annual fee charges of 1.5% on issued syndicated LOC along with a facility fee of 0.25% on the total obligation.
 
For the credit agreement with a consortium of banks, Lincoln has appointed J.P. Morgan Securities Inc., a wing of JPMorgan Chase & Co. (JPM) and Banc of America Securities LLC, a unit of Bank of America Corp. (BAC) as joint lead arrangers and joint book-runners. Additionally, while Bank of America is the syndication agent, the U.S. Bank and Wells Fargo & Co. (WFC) are appointed as the documentation agents. JPMorgan Chase Bank is appointed as the administrative agent.
 
However, the fee charges for both the credit lines will be adjusted in the event of any change in Lincoln’s credit ratings. Besides, on Jun 4 Fitch rating agency upgraded Lincoln’s long term outlook to positive from negative, while 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. These positive revisions were followed by the company’s attainment of a financing solution for its life insurance operations by securing the above mentioned $2 billion bank credit facility.
 
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 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 first half of 2011 after strengthening its reserves. 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, we believe that Lincoln’s disciplined capital management will enable the best utilization of the credit facility available to the company under the current economic environment. Further, the company’s business fundamentals, sale of Lincoln UK and Delaware, a reduction of its common stock dividend and other cost savings initiative bode well for long-term growth.
 
Read the full analyst report on “LNC”
Read the full analyst report on “MCO”
Read the full analyst report on “JPM”
Read the full analyst report on “BAC”
Read the full analyst report on “WFC”
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