(The following statement was released by the rating agency)
Oct 9 - Fitch Ratings has placed the ratings of Principal Financial Group, Inc.
(PFG) and its insurance company subsidiaries on Rating Watch Negative. The rating actions follows PFG's announcement that that it plans to acquire AFP Cuprum S.A. (Cuprum), a Chilean pension manager, for $1.5 billion, subject to adjustments for pre-closing dividends. A full list of rating actions follows at the end of this release.
The action reflects Fitch's view that the debt financed acquisition will bring PFG's financial leverage and coverage to levels near previously articulated downgrade triggers. The transaction also will add substantial goodwill and other intangibles to the company's balance sheet. Any final rating action is pending additional review of the creditworthiness of Cuprum, and close of the transaction.
Fitch plans to review Cuprum's financial profile in the coming weeks. Key areas of analysis will include the macro environment for Chilean pension business as well as the stability of Cuprum's earnings and cash flow available to support the incremental debt. Fitch does not currently rate Cuprum.
Fitch believes this acquisition is consistent with PFG's strategy of making international acquisitions in existing growth businesses.
Fitch estimates PFG's financial leverage ratio was 18% at June 30, 2012, and fixed charge coverage was approximately 7.4x for first half 2012, compared to downgrade triggers of 25% and 5x, respectively. Based on its pro forma calculations of possible financing scenarios, Fitch believes levels of these two financial measures will be closer to their downgrade triggers after the transaction.
PFG's primary insurance entity, Principal Life Insurance Company, has a strong capital position with total adjusted statutory capital of $4.7 billion and a Risk Based Capital (RBC) level Fitch estimates at 448% at June 30, 2012. The transaction is not expected to have any impact on RBC.
Further commentary on the status of the Rating Watch will likely follow Fitch's review of Cuprum. Potential resolution of the Rating Watch could include an affirmation of all ratings at current levels, a downgrade of all ratings, likely by no more than one notch, or an affirmation of insurance company ratings along with a downgrade of holding company ratings.
Fitch has placed the following ratings on Rating Watch Negative:
Principal Financial Group, Inc. --Issuer Default Rating (IDR) 'A'; --$600 million 6.05% due Oct. 15, 2036 'A-'; --$400 million 7.875% due May 2014 'A-'; --$350 million 8.875% due May 2019 'A-'; --5.563% preferred stock due 2015, series A 'BBB'; --6.518% preferred stock due 2035, series B 'BBB'; --$300 million 3.3% due Sept. 2022 'A-'; --$300 million 4.625% due Sept 2042 'A-'. Principal Financial Services, Inc. --Long-term IDR 'A'; --Short-term IDR 'F1; --Commercial paper 'F1'. Principal Life Insurance Company --Insurer Financial Strength (IFS) 'AA-'; --IDR 'A+'; --$100 million Surplus Note due March 1, 2044 'A'. Principal National Life Insurance Company --IFS 'AA-'.
Fitch also places the following funding agreement backed notes issuance programs and their outstanding issues on Rating Watch Negative:
Principal Financial Global Funding LLC Principal Life Income Fundings Trust Principal Life Global Funding I Principal Financial Global Funding II, LLC --Outstanding issues 'AA-'.
Additional information is available at '
'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Sept. 19, 2012); --'Principal Financial Group, Inc. (And Operating Subsidiaries)' (Aug. 1, 2012).
Applicable Criteria and Related Research: Insurance Rating Methodology Principal Financial Group, Inc. (And Operating Subsidiaries) (New York Ratings Team)