Ohio Casualty Proposes Private Offering of Convertible Notes

Ohio Casualty Corporation announced it is seeking to raise, subject to market and other conditions, $125 million through a private offering of convertible notes. The offering by the Fairfield, Ohio company will be made only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933.

Ohio Casualty intends to use the net proceeds of the offering for repayment of bank debt. The notes, which will be convertible into shares of the company’s common stock, will be due in 2022.

Standard & Poor’s assigned its “BB” senior debt rating to Ohio Casualty’s $125 million convertible notes due in 2022 based on the company’s regional business position, good capitalization, and improved investment strategy.

S&P also affirmed its “BBB” counterparty credit and financial strength ratings on Ohio Casualty’s operating subsidiaries and its “BB” counterparty credit rating on the holding company. The outlook was revised to stable from negative.

According to S&P, the holding company’s financial flexibility has been limited by marginal interest coverage over the last three years, as well as restrictive covenants on the group’s $205 million outstanding bank facility, which is due in October 2002. Although Ohio Casualty is currently in compliance with its debt covenants, S&P believes the group’s convertible note issue will significantly improve financial flexibility by affording the holding company greater breathing room to enact its strategic plan.

The outlook reflects Ohio Casualty’s improved strategic focus with the entrance of a new management team in 2001.

It also reflects re-underwriting actions that are gradually improving operating performance. Partially offsetting these factors are challenges related to the group’s restructuring as well as three consecutive years of poor operating performance and low interest coverage at the holding-company level.