A.M. Best has assigned a debt rating of “bbb” to the recently issued CAD 350 million 3.90% non-cumulative rate reset Class 1 shares Series 17 of Manulife Financial Corporation (MFC) (Toronto, Ontario). The outlook assigned to the rating is stable. This offering is for five-year rate reset preferred shares issued at CAD 25 per share.
The proceeds from the new preferred shares offering will be utilized for general corporate purposes, which include funding the redemption of the existing CAD 350 million Class 1 Series 1 Preferred Shares on Sept. 19, 2014. The newly issued preferred shares are anticipated to qualify as Tier 1 capital for MFC. MFC’s financial leverage has been decreasing due to its capital growth and remains within the range that supports its current ratings. Since this issuance is to refinance a redemption, it is expected to be leverage neutral.
A.M. Best has also assigned indicative ratings of "a-" for senior unsecured debt, "bbb+" for subordinated debt and "bbb" for preferred stock, which may be issued under the recently filed and approved base shelf prospectus of MFC. The outlook assigned to all these ratings is stable.
The ratings on the securities, which may be issued under the base shelf prospectus, are consistent with the current ratings of MFC's outstanding securities. The new base shelf prospectus replaces MFC's previous base shelf prospectus. Consequently, the ratings for the previous base shelf prospectus have been withdrawn. All remaining debt ratings and ratings of MFC and its subsidiaries remain unchanged.MFC reported net income of CAD 943 million in its second quarter of 2014 International Financial Reporting Standards’ financial results due to solid core earnings and growth in the company’s asset management business in Asia, Canada and the United States, plus strong investment experience. Mutual fund assets have continued to grow as MFC focuses its growth on high return and lower risk businesses. Despite the use of hedging to mitigate earnings volatility, A.M. Best believes the company’s large book of interest and equity market sensitive in-force business will continue to remain a challenge.