Everest Re Subsidiary Offers of $1 Billion Senior Notes

Everest Re Group Ltd.’s RE wholly-owned subsidiary, Everest Reinsurance Holdings, Inc. announced the pricing of $1 billion aggregate principal amount of senior unsecured notes. The notes carry an interest rate of 3.500% and are scheduled to mature in 2050.

The company aims to deploy the net proceeds 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 Jun 30, 2020, cash balance increased about 45.2% to $1.8 billion from 2019 end level.

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.

As of Jun 30, 2020, total debt of the company was about $621 million, which decreased 2.1% from 2019-end level. Its debt has been decreasing since 2017 with an improvement in debt to capital. Moreover, debt-to-capital ratio on Jun 30, 2020 was 6.3, which improved 20 basis points from 2019 end and compared favorably with the industry average of 21.3. However, the latest offering will increase the debt-to-capital ratio by 850 basis points.

Nonetheless, the company’s times interest earned of 17.6 compared favorably with the industry average of 8.4. The improvement in this ratio indicates that the firm will be able to meet current obligations in the near future without any difficulties.

The company’s capital position remains strong, with high quality invested assets, significant liquidity, and low financial leverage. Its liquidity requirements are generally met from cash flow from operations. It generally expects annual positive cash flow from operations, which reflects the strength of overall pricing.

In addition to cash flows from operations and liquid investments, it also has multiple credit facilities that provide up to $200million of unsecured revolving credit for liquidity and letters of credit.

Recently, some other insurers like American Financial Group AFG, Fidelity National Financial FNF and Chubb Limited CB offered 4.50% $200 million senior unsecured notes, 2.450% $600 million senior unsecured notes and 1.375% $1 billion senior unsecured notes, respectively to capitalize on the low interest rate environment.

Shares of this Zacks Rank #2 (Buy) property and casualty insurer have lost 19.3% compared with the industry’s decline of 3.6% in a year’s time. Nevertheless, strong capital position and effective capital deployment are likely to drive shares going forward.

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