A.M. Best Co. has assigned a debt rating of “bbb+” to the 30-year $150 million 6.0% subordinated debentures recently issued by Protective Life Corporation (Protective) (headquartered in Birmingham, AL) (NYSE: PL). The rating outlook is stable. All other ratings of Protective and its subsidiaries are unchanged.
The new securities are unsecured, subordinated and junior in right of payment to all of Protective’s existing and future senior indebtedness. Additionally, the debentures may be redeemed in whole or in part on or after August 15, 2017, and interest payments may be deferred up to five years. As such, A.M. Best has afforded the new debentures some equity credit in the calculation of Protective’s financial leverage.
A.M. Best expects the proceeds to be used to redeem the remaining $125 million in aggregate principal amount outstanding of Protective’s 7.25% capital securities, and the remainder for general working capital purposes. Hence, the organization’s financial leverage will not increase materially. However, while Protective’s shareowners’ equity has exhibited favorable trends in recent periods, A.M. Best notes that a retrospective accounting charge to write down a portion of the company’s deferred acquisition cost balance reduced its total equity in the early part of 2012. Consequently, Protective’s adjusted debt-to-capital ratio has increased and remains somewhat elevated for its current ratings at roughly 32%. Interest coverage remains sufficient in the range of four to five times. While leverage is elevated, A.M. Best notes Protective’s steady cash flows, access to multiple liquidity sources and profitable operations, which facilitate the company’s debt servicing capabilities.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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