Fitch Expects to Rate Manulife Financial's Preferred Stock 'BBB'

Thu Aug 14, 2014 10:36am EDT

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(The following statement was released by the rating agency) CHICAGO, August 14 (Fitch) Fitch Ratings expects to assign a 'BBB' rating to Manulife Financial Corporation's (MFC) announced issuance of CAD350 million of 3.90% non-cumulative Rate Reset Class 1, Series 17 preferred shares. KEY RATING DRIVERS Proceeds from the issuance will be used to redeem the company's CAD350 million of 5.6% non-cumulative Rate Reset Class 1, Series 1 preferred shares on Sept. 19, 2014. As such, pro forma financial leverage is expected to remain unchanged at 20%. Fitch affirmed the ratings of MFC and its insurance operating subsidiaries with a Stable Outlook on July 22, 2014. RATING SENSITIVITIES Key rating triggers for MFC that could lead to a downgrade include: --Decline in core earnings; --Elevated charges for actuarial methods and assumptions or experience losses; --Fixed-charge coverage on a core earnings basis below 5.5x; --An increase in financial leverage to over 25% or an increase in total leverage to over 35%. --A sustained drop in the company's risk-adjusted capital position with no plans or ability to rectify. This would include the MCCSR ratio falling below 200%. The ratings on the U.S. insurance subsidiaries could be impacted if the U.S. risk-based capital ratio fell below 400%. Key ratings triggers for MFC that could lead to an upgrade include: --Continued improvement in profitability on both a core earnings and reported net income basis; --An increase in fixed-charge coverage on a core earnings basis to near 10x; --Sustain current capital and earnings sensitivity to interest rate and equity markets; --A decline in financial leverage to near 20%. Fitch has assigned the following rating: Manulife Financial Corporation --CAD350 million 3.90% non-cumulative rate reset, preferred class 1, series 17 stock 'BBB'. Fitch currently rates the MFC entities as follows: Manulife Financial Corporation --Issuer Default Rating (IDR) 'A'; --CAD550 million medium term notes 5.161% due 2015 'A-'; --USD600 million senior notes 3.40% due 2015 'A-'; --CAD900 million medium term notes 4.079% due 2015 'A-'; --CAD400 million medium term notes 5.505% due 2018 'A-'; --CAD600 million medium term notes 7.768% due 2019 'A-'; --USD500 million senior notes 4.90% due 2020 'A-'; --CAD350 million 4.10% non-cumulative class A, series 1, preferred stock 'BBB'; --CAD350 million 4.65% non-cumulative class A, series 2, preferred stock 'BBB'; --CAD300 million 4.50% non-cumulative class A, series 3, preferred stock 'BBB'; --CAD350 million 5.60% non-cumulative rate reset, preferred class 1, series 1 stock 'BBB'; --CAD200 million 4.20% non-cumulative rate reset, preferred class 1, series 3 stock 'BBB'; --CAD200 million 4.40% non-cumulative rate reset, preferred class 1, series 5 stock 'BBB'; --CAD250 million 4.60% non-cumulative rate reset, preferred class 1, series 7 stock 'BBB'; --CAD250 million 4.40% non-cumulative rate reset, preferred class 1, series 9 stock 'BBB'; --CAD200 million 4% non-cumulative rate reset, preferred class 1, series 11 stock 'BBB'; --CAD200 million 3.8% non-cumulative rate reset, preferred class 1, series 13 stock 'BBB'; --CAD200 million 3.9% non-cumulative rate reset, preferred class 1, series 15 stock 'BBB'. The Manufacturers Investment Corporation --IDR 'A'; --Short-term IDR 'F1'; --Commercial paper 'F1'. Manulife Financial Capital Trust II --CAD1 billion 7.405% MaCS II series 1 'A-'. Manulife Finance, L.P. --CAD550 million 4.448% fixed/floating senior debentures due 2026 (Manulife Finance Corp. guarantor) 'A-'; --CAD650 million 5.059% fixed/floating subordinated debentures due 2041 (Manulife Finance Corp. guarantor) 'BBB+'. The Manufacturers Life Insurance Company --Insurer Financial Strength (IFS) 'AA-'; --IDR 'A+'; --CAD550 million 4.21% fixed/floating subordinated debentures due 2021 (Manulife Finance Corp. guarantor) 'A-'; --CAD500 million 4.165% fixed/floating subordinated debentures due 2022 (Manulife Finance Corp. guarantor) 'A-'; --CAD200 million 2.819% fixed/floating subordinated debentures due 2023 (Manulife Finance Corp. guarantor) 'A-'; --CAD250 million 2.926% fixed/floating subordinated debentures due 2023 (Manulife Finance Corp. guarantor) 'A-'; --CAD500 million 2.811% fixed/floating subordinated debentures due 2024 (Manulife Finance Corp. guarantor) 'A-'. John Hancock Life Insurance Co (U.S.A.) --IFS 'AA-'; --IDR 'A+'; --USD450 million surplus notes 7.375% due 2024 'A'. The John Hancock Life Insurance Company of New York --IFS 'AA-'. John Hancock Life & Health Insurance Company --IFS 'AA-'. John Hancock Global Funding II --Global MTN program 'AA-'. Contact: Primary Analyst Tana M. Higman Director +1-312-368-3122 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Dafina M. Dunmore, CFA Director +1-312-368-3136 Committee Chairperson Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 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' (Nov. 13, 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status 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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