TEXT-S&P rates Swiss Life's proposed subordinated bonds 'BBB'
(The following statement was released by the rating agency)
Oct 02 - Standard & Poor's Ratings Services said today that it had assigned its 'BBB' long-term issue rating to the proposed perpetual callable bonds of insurer Swiss Life AG (A-/Stable/--). The bonds will be issued in Switzerland and denominated in the local currency. The rating is subject to our review of the final terms and conditions.
The rating incorporates our standard methodology for junior subordinated debt issues: We have rated the proposed bonds two notches below the long-term counterparty credit rating on the issuer, Swiss Life.
The rating is based on our understanding that holders of the proposed bonds will be subordinated to Swiss Life's senior creditors and that Swiss Life has the option of deferring interest if, during the previous six-month period:
-- No dividend or other distribution was declared, and no interest was paid on any junior or equally ranking securities; or
-- No redemption, repayment, or repurchase of any parity or junior instruments was made.
Furthermore, we note that interest deferral is mandatory only if a solvency event has occurred.
Swiss Life can call the proposed bonds in 2018 and on any subsequent annual coupon date, subject to approval from the insurance regulator. Initially, Swiss Life will pay a fixed coupon each year. If the bonds are not redeemed at the first call date, the coupon will be reset to the prevailing five-year Swiss franc mid-swap rate plus the initial margin. There is no interest-margin step-up. Thereafter, the coupon will be reset periodically on the interest payment date falling on the fifth anniversary of the previous reset.
We expect to classify the bonds as having "intermediate equity content" under our hybrid capital criteria. We include securities of this nature, up to a maximum of 25%, in our calculation of total adjusted capital, which forms the basis of our consolidated risk-based capital analysis of insurance companies. Such inclusion is subject to the bonds being considered eligible for regulatory solvency treatment and the aggregate amount of included hybrid capital not exceeding the total eligible for regulatory solvency treatment.
We understand that Swiss Life plans to use the proceeds from the bonds for general corporate and refinancing purposes. Including this transaction, we estimate that the wider group's financial leverage (debt plus hybrid capital, divided by the sum of economic capital available, debt, and hybrid capital) will remain conservative at less than 25%. The fixed-charge coverage (EBITDA divided by senior and subordinated debt interest) is likely to exceed 5x, which we consider to be in line with our parameters for the current rating category.
RELATED RESEARCH AND CRITERIA
-- Hybrid Capital Issue Features: Update On Dividend Stoppers, Look-Backs, And Pushers, Feb. 10, 2010
-- Assumptions: Clarification Of The Equity Content Categories Used For Bank And Insurance Hybrid Instruments With Restricted Ability To Defer Payments, Feb. 9, 2010
-- Criteria Assumptions Regarding Coupon Step-Ups In Equity Hybrids Issued By Banks And Insurers, Sept. 16, 2009
-- Financial Flexibility, April 22, 2009
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008