Fitch Expects to Rate American Equity's Senior Unsecured Notes 'BB'

Thu Jul 11, 2013 5:18pm EDT

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(The following statement was released by the rating agency) CHICAGO, July 11 (Fitch) Fitch Ratings has assigned an expected rating of 'BB' to American Equity Investment Life Holding Company's (AEL) proposed issuance of $400 million of senior unsecured notes due 2021. AEL's Long-term Issuer Default Rating is unaffected by this rating action. Fitch affirmed the ratings of AEL and its insurance operating subsidiaries with a Stable Outlook on April 12, 2013. KEY RATING DRIVERS Fitch expects the majority of proceeds from the issuance to be used to fund the redemption of a portion of existing debt on the company's balance sheet. Issuance of the new senior debt is not expected to result in an increase in AEL's financial leverage ratio to a level above Fitch's rating trigger of 50%. The company's financial leverage was approximately 36% at March 30, 2013. AEL's recent financial performance has been in line with Fitch's expectations for the company's current ratings. AEL is headquartered in West Des Moines, Iowa and reported total GAAP assets of $36.9 billion and equity of $1.7 billion at March 31, 2013. AEILIC, the main operating subsidiary of AEL, is also headquartered in West Des Moines and had statutory capital and surplus of $1.7 billion at March 31, 2013. RATING SENSITIVITIES The key rating triggers that could result in an upgrade include: --Enhanced capitalization with risk-based capital (RBC) above 350% on a sustained basis. The key rating triggers that could result in a downgrade include: --A reduction in capitalization with RBC below 300%; --A sustained deterioration in operating results such that interest coverage is below 3x; --Significant increase in lapse/surrender rates; --Inability to maintain sufficient parent company liquidity to fund any potential forced repurchase of outstanding notes payable; --Unexpected spike in credit related impairments; --Financial leverage above 50%. The key rating triggers that could result in a narrowing of notching between the IDR of AEL and the Insurer Financial Strength (IFS) of AEILIC include: --A sustainable decline in financial leverage below 30%; --Sustained GAAP EBIT-based interest coverage above 8x. Fitch expects to assign the following rating: American Equity Investment Life Holding Company --$400 million senior unsecured notes due 2021 'BB'. Contact: Primary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst R. Andrew Davidson, CFA Senior Director +1-312-368-3144 Committee Chairperson Mark E. Rouck, CPA, CFA Senior Director +1-312-368-2085 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Jan. 11, 2013); --'Life Insurance (U.S.) Sector Credit Factors' (Oct. 9, 2012); --'American Equity Investment Life Holding Company (And Insurance Operating Subsidiaries)'(May 15, 2012). Applicable Criteria and Related Research: American Equity Investment Life Holding Company (And Insurance Operating Subsidiaries) here Life Insurance (U.S.) Sector Credit Factors here Insurance Rating Methodology — Amended here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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