Reinsurance Group Offers $600 Million Senior Unsecured Notes

Reinsurance Group of America, Incorporated RGA announced the pricing of $600 million aggregate principal amount of senior unsecured notes. The notes carry an interest rate of 3.150% and are scheduled to mature in 2030.

The company aims to deploy the net proceeds from the sale of the Notes for the purpose of repayment of $400 million senior notes, which carry an interest rate of 5% and are scheduled to mature on Jun 1, 2021. The remaining net proceeds are intended for general corporate purposes.

The company issued senior notes amid a low interest rate environment to get hold of more funds and enhance financial flexibility without affecting its liquidity. As of Mar 31, 2020, Reinsurance Group had $3.5 billion liquidity.

As of Mar 31, 2020, total debt of the company was about $2.9 billion, which remained flat with the 2019-end level. Its debt has been decreasing since 2017 with an improvement in debt to capital. However, debt-to-capital ratio on Mar 31, 2020 was 24.3, up 390 basis points from 2019 end. The latest offering will further deteriorate the debt-to-capital ratio by 350 basis points.

By capitalizing on the low interest rate environment, the company is also attempting to reduce its interest burden, thus facilitating margin expansion. Also, the company’s operational strength should enable it to service debt uninterruptedly, thereby maintaining the stock’s creditworthiness.

Reinsurance Group’s times interest earned ratio has been improving over the years. The improvement in this ratio indicates that the firm will be able to meet current obligations in the near future without any difficulties. At a time when every entity is looking forward to preserve liquidity amid uncertainty as a result of the COVID-19 outbreak, an improving ratio is reassuring for investors.

Recently, some other insurers like Radian Group Inc. RDN, Manulife Financial Corporation MFC and Alleghany Corporation Y offered 6.625% $525 million senior unsecured notes, 2.484% $500 Million senior unsecured notes and 3.625% $500 million senior unsecured notes, respectively to capitalize on the low interest rate environment.

Shares of this Zacks Rank #4 (Sell) life insurer have lost 32% compared with the industry's decline of 14.9% in a year’s time. Nevertheless, strong capital position and effective capital deployment are likely to drive shares going forward.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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