TEXT-S&P assigns AXA's perpetual subordinated notes 'BBB' rating

Thu Jan 17, 2013 3:41am EST

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(The following statement was released by the rating agency)

Jan 17 - Standard & Poor's Ratings Services said today that it has assigned its 'BBB' long-term issue rating to the $850 million perpetual subordinated notes issued by France-based AXA (A-/Stable/A-2), the holding company of AXA Group (core operating entities A+/Stable). The rating of the notes is subject to our review of the final terms and conditions.

We rated the notes two notches below the long-term counterparty credit rating on the issuer, AXA, reflecting our hybrid debt criteria. We understand that the noteholders will be subordinated to AXA's senior creditors, and that the insurer has the option of deferring interest on the debt issue. Furthermore, we note that interest deferral is mandatory if a solvency event has occurred.

AXA can call the notes in January 2019 and subsequently at each interest payment date thereafter. The coupon is fixed for the life of the notes.

We expect to classify the bonds as having "intermediate equity content" under our hybrid capital criteria. We include securities of this category, up to a maximum of 25%, in our calculation of total adjusted capital (TAC), which forms the basis of our consolidated risk-based capital analysis of insurance companies. Our inclusion in TAC nevertheless depends on their eligibility for regulatory solvency treatment. The amount of hybrid capital we include cannot exceed the total eligible for regulatory capital.

We understand that AXA is expecting to use the bond's proceeds to refinance its existing convertible bond that matures in 2014. We expect financial leverage to increase temporarily but to remain lower than 28% following this issue, and trend back down during 2014. We expect fixed-charge coverage to remain above 7x, a level consistent with the rating.

RELATED RESEARCH AND CRITERIA

-- Criteria - Insurance - General: Interactive Ratings Methodology, April 22, 2009

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

-- Criteria - Insurance - General: Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

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