Industrial Alliance Insurance and Financial Services Inc. has announced that it:
has today entered into an agreement with a syndicate of underwriters co-led by National Bank Financial Inc. and BMO Capital Markets, pursuant to which the underwriters have agreed to purchase, on a bought deal basis, 6,000,000 Common Shares (the “Common Shares”) from Industrial Alliance for sale to the public at a price of $37.50 per Common Share, representing aggregate gross proceeds of $225 million.
The Company has also granted the underwriters an option to buy up to an additional $25 million of the Common Shares at the same price per share to cover over-allotments, if any.
This share offering is expected to close on or about February 27, 2013, subject to certain conditions including approval from the Toronto Stock Exchange. The net proceeds of approximately $216 million, after deducting underwriting commissions and before issuance costs, will be used to redeem all of the outstanding 8.25% subordinated debentures due March 27, 2019 (the “Subordinated Debentures”) with a nominal value of $100 million and to redeem all of the Industrial Alliance Trust Securities (“IATS”) – Series A (the “IATS – Series A”) with a nominal value of $150 million. Following closing of this offering, Industrial Alliance intends to issue a redemption notice to redeem the Subordinated Debentures on or about March 29, 2013 and to issue the necessary notice to redeem the IATS – Series A on June 30, 2013. The Subordinated Debentures and the IATS – Series A will be redeemed for a consideration determined in accordance with their respective terms.
According to the Company’s financial information as at December 31, 2012, an issue of $225 million of Common Shares, if the abovementioned redemptions are taken into account, would reduce the debt ratio from 18.5% to 12.4% if only the debentures and the IATS are considered debt, and from 35.2% to 29.3% if preferred shares are also considered debt. The solvency ratio, which stood at 217% as at December 31, 2012 (230% as at January 1, 2013), would decline by about two percentage points, but would remain unchanged if the full $25 million over allotment option were exercised. The Company maintains its guidance for 2013 provided on February 15, 2013.
As a result, S&P has announced:
- •Industrial Alliance Insurance and Financial Services Inc. will issue up to C$250 million in common shares to retire C$250 million in debentures and trust securities.
- •We are revising our outlook on the company to stable from negative and affirming all ratings.
- •We expect leverage to drop to approximately 29% and fixed-charge coverage to increase to 6x.
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The capital raise reflects the company’s exposure to the current low interest rate environment primarily through its relatively large exposure to long-duration individual life insurance products and the fair-value treatment that these liabilities receive under Canadian International Financial Reporting Standards and Canadian regulatory capital rules. Management has taken a number of proactive steps to strengthen its capital position, including de-risking and re-pricing products to reduce capital strain, selling capital-intensive businesses, and successfully negotiating the capital requirements underlying the lapse assumptions for retail insurance with Canadian regulators.The outlook is stable. We could downgrade the company if leverage exceeds 35% and if its fixed -charge coverage falls to less than 5x. Alternatively, we could consider raising the rating on the company if it were able to reduce leverage meaningfully and increase fixed-charge coverage to 8x.
IAG has several preferred share issues outstanding: IAG.PR.A, IAG.PR.E & IAG.PR.F, DeemedRetractibles, and IAG.PR.C & IAG.PR.G, FixedResets. All are tracked by HIMIPref™ all are assigned to their respective indices.
[…] This follows a similar move by S&P. […]