TEXT-S&P rates Allianz SE's undated subordinated bonds 'A+'

Thu Nov 22, 2012 4:54am EST

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(The following statement was released by the rating agency)

Nov 22 - Standard & Poor's Ratings Services said today that it had assigned its 'A+' long-term issue rating to the undated subordinated notes of Germany-based insurer Allianz SE (AZSE; AA/Negative/A-1+). The rating is subject to our review of the final terms and conditions.

The rating incorporates our methodology for junior subordinated debt issues: We have rated the notes two notches below the long-term counterparty credit rating on the issuer, AZSE.

The rating is based on our understanding that the holders of the notes will be subordinated to AZSE's senior creditors and dated subordinated creditors, and that AZSE has the option of deferring interest if, during the previous six-month period:

-- No dividend or other distribution was declared, and no other distribution or payment in respect of any class of shares was made; or

-- No payment on account of the balance sheet profit has been made by the issuer since the last ordinary general meeting of shareholders.

Furthermore, we note that interest deferral is mandatory if a solvency event has occurred.

AZSE can call the notes in 2018 and subsequently at any time thereafter, subject to the conditions of repayment, including approval from the insurance regulator. The coupon is fixed, without any step-up.

We expect to classify the notes 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 AZSE plans to use the proceeds from the bonds for 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 relatively conservative at lower than 25%. The fixed-charge coverage (EBITDA divided by senior and subordinated debt interest) is likely to remain close to our minimum expectation of 7x.

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

-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008

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