(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 WatchNegative. The rating actions follows PFG's announcement that that it plans toacquire 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 actionsfollows at the end of this release.
The action reflects Fitch's view that the debt financed acquisition will bringPFG's financial leverage and coverage to levels near previously articulateddowngrade triggers. The transaction also will add substantial goodwill and otherintangibles to the company's balance sheet. Any final rating action is pendingadditional review of the creditworthiness of Cuprum, and close of thetransaction.
Fitch plans to review Cuprum's financial profile in the coming weeks. Key areasof analysis will include the macro environment for Chilean pension business aswell as the stability of Cuprum's earnings and cash flow available to supportthe incremental debt. Fitch does not currently rate Cuprum.
Fitch believes this acquisition is consistent with PFG's strategy of makinginternational acquisitions in existing growth businesses.
Fitch estimates PFG's financial leverage ratio was 18% at June 30, 2012, andfixed charge coverage was approximately 7.4x for first half 2012, compared todowngrade triggers of 25% and 5x, respectively. Based on its pro formacalculations of possible financing scenarios, Fitch believes levels of these twofinancial measures will be closer to their downgrade triggers after thetransaction.
PFG's primary insurance entity, Principal Life Insurance Company, has a strongcapital position with total adjusted statutory capital of $4.7 billion and aRisk Based Capital (RBC) level Fitch estimates at 448% at June 30, 2012. Thetransaction is not expected to have any impact on RBC.
Further commentary on the status of the Rating Watch will likely follow Fitch'sreview of Cuprum. Potential resolution of the Rating Watch could include anaffirmation of all ratings at current levels, a downgrade of all ratings, likelyby no more than one notch, or an affirmation of insurance company ratings alongwith 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 programsand their outstanding issues on Rating Watch Negative:
Principal Financial Global Funding LLCPrincipal Life Income Fundings TrustPrincipal Life Global Funding IPrincipal Financial Global Funding II, LLC--Outstanding issues 'AA-'.
Additional information is available at '
'. The ratings abovewere solicited by, or on behalf of, the issuer, and therefore, Fitch has beencompensated 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 MethodologyPrincipal Financial Group, Inc. (And Operating Subsidiaries)(New York Ratings Team)