Reuters: Financial Services and Real Estate: TEXT-S&P rates Talanx proposed subordinated callable notes 'BBB'

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TEXT-S&P rates Talanx proposed subordinated callable notes 'BBB' Mar 28th 2012, 08:46 Wed Mar 28, 2012 4:46am EDT (The following statement was released by the rating agency) March 28 - -- Luxembourg-based Talanx Finanz (Luxemburg) S.A. has announced its intention to issue fixed to floating-rate junior unsecured subordinated callable notes due in 2042. -- The issue is irrevocably guaranteed on a subordinated basis by its parent, Germany-based insurance holding company Talanx AG. -- We are assigning a 'BBB' issue rating to the proposed securities and expect to classify them as having "intermediate equity content" according to our criteria. Standard & Poor's Ratings Services said today that it had assigned its 'BBB' long-term issue rating to a proposed issue of fixed to floating-rate unsecured subordinated callable notes due in 2042 to be issued by Luxembourg-based Talanx Finanz (Luxemburg) S.A. The issue is irrevocably guaranteed on a subordinated basis by the issuer's parent, Germany-based insurance holding company Talanx AG (A-/Stable/--). The rating is subject to confirmation of the final terms and conditions of the issue. The rating reflects our standard notching for unsecured subordinated debt issues of two notches below the counterparty credit rating of the issuer's guarantor, Talanx AG. We have analyzed and rated the proposed issue on the understanding that: -- The notes are irrevocably guaranteed on a subordinated basis by Talanx AG; -- The notes will be subordinated to senior creditors of the issuer and the guarantor. The notes will rank pari passu with unsecured subordinated creditors of the issuer and the guarantor; -- Interest deferral can occur at the option of the issuer, subject to a "dividend pusher" clause with a look-back period of up to six months; -- Interest deferral can be mandatory. A mandatory deferral could be triggered if the Talanx group does not meet the required minimum solvency margin under the current regulatory regime or solvency requirements under future Solvency II regulations; -- The issue will be fully eligible for regulatory solvency purposes. We expect to classify the notes as having "intermediate equity content" under our current hybrid capital criteria, subject to our review of the final terms. We include such securities up to a maximum of 25% in our calculation of total adjusted capital, the basis of our consolidated risk-based capital analysis of insurance companies. The inclusion is subject to the issue being considered eligible for regulatory solvency, and if the aggregate amount of included issues is no more than the total eligible for regulatory solvency. Our classification of the notes in the "intermediate equity content" category may change if the final Solvency II implementation measures preclude eligibility of the notes as regulatory capital. From our understanding of the documentation for the proposed notes, the issuer can call the notes 10 years after issuance or at any later coupon date. Initially, the issuer will pay an annual fixed coupon. If the notes are not called after 10 years from the issuance date, the interest rate will convert to a floating rate based on the three-month Euro Interbank Offered Rate, plus a margin (including a 100 basis point step-up), and be payable quarterly. We therefore consider the incentive to call the notes at year 10 to be moderate. Following issuance of the notes, we expect the Talanx group's financial leverage to remain in line with the current rating level and the group's hybrid exposure to remain within our maximum tolerance for hybrid acceptance. We estimate the financial leverage to be about 24% in 2012 compared with about 21% in 2011. We expect the group's fixed-charge coverage to improve to 4x-5x in 2012 and so become more commensurate with the current rating level. We expect that the proceeds will be used to refinance existing hybrid instruments. RELATED CRITERIA AND RESEARCH -- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008 -- Criteria Assumptions Regarding Coupon Step-Ups In Equity Hybrids Issued By Banks And Insurers, Sept. 16, 2009 -- Clarification Of The Equity Content Categories Used For Bank And Insurance Hybrid Instruments With Restricted Ability To Defer Payments, Feb. 9, 2010 -- Hybrid Capital Issue Features: Update On Dividend Stoppers, Look-Backs, And Pushers, Feb. 10, 2010 -- Implications Of Solvency II Proposals For Our European Insurance Hybrid Criteria, March 4, 2010 Link this Share this Digg this Email Reprints

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