(The following statement was released by the rating agency)
Oct 11 - Standard & Poor's Ratings Services said today that it had assigned its 'A+' long-term issue rating to the subordinated fixed-to-floating rate notes of insurer Allianz SE (AZSE; AA/Negative/A-1+) .
The rating incorporates our standard methodology for subordinated debt issues: We have rated the bonds two notches below the long-term counterparty credit rating on the issuer, AZSE.
The rating is based on our understanding that holders of the bonds will be subordinated to AZSE's senior creditors and that AZSE has the option of deferring interest if, during the previous six-month period:
-- No dividend or other distribution was declared, and there was no other distribution or payment in respect of any class of shares.
-- No payment on account of the balance sheet profit has been made by the issuer since the ordinary general meeting of shareholders.
Furthermore, we note that interest deferral is mandatory if a solvency event has occurred.
AZSE has an ordinary call right in 2022 and on any subsequent quarterly coupon date, subject to the conditions of redemption, which include an approval from the insurance regulator. Initially, AZSE will pay a fixed coupon each year. After the first call date, the coupon will be reset to the three-month Euro deposit rate plus a margin compromising the initial credit spread and a 100 basis-point step-up.
We classify the bonds as having "intermediate equity content" under our hybrid capital criteria. We include securities of this nature, up to a maximum of 25%, in our calculation of total adjusted capital, which forms the basis of our consolidated risk-based capital analysis for insurance companies. Such inclusion is subject to the bonds eligibility for regulatory solvency treatment and the aggregate amount of included hybrid capital not exceeding the total eligible for regulatory solvency treatment.
We understand that AZSE plans to use the proceeds from the bonds for refinancing purposes. Including this transaction, we estimate that the wider group's financial leverage (debt plus hybrid capital, divided by the sum of economic capital available, debt, and hybrid capital) will remain relatively conservative at less than 25%. The fixed-charge coverage (EBITDA divided by senior and subordinated debt interest) is likely to remain close to our minimum expectation of 7x.
(Caryn Trokie, New York Ratings Unit)