A.M. Best Co. announced that it has assigned a “bbb-“senior unsecured debt rating to Philadelphia-based PMA Capital Corporation’s $50 million senior notes maturing in 2018. The notes carry an interest rate of 8.5% and are being issued under the company’s $250 million shelf registration.
Best noted that “Proceeds from this offering will be used to repay the remaining $13 million of outstanding debt under the company’s bank credit facility, while the remainder will be used to increase the surplus of PMA’s insurance subsidiaries.”
It also indicated that “PMA has progressed well in its capital raising objectives, which have been geared to reducing dependence on short-term bank debt, lengthening the maturity profile of the company’s capital structure and improving the capital strength of the operating subsidiaries. To this end, PMA has recently issued two privately placed 30-year trust preferred securities totaling $32.5 million, proceeds of which were also used to reduce bank debt, substantially alleviating A.M. Best’s holding company liquidity concerns. PMA’s financial leverage will increase to 22.2%, including the trust preferreds.
“Given the improved nature of the capital structure, leverage is considered in line with the company’s debt rating. However, overall, leverage validity remains clouded by PMA’s earnings inconsistency. Fixed charges will increase in step with the increase in leverage; however, with the additions to surplus at the operating subsidiaries, the need to dividend has become less burdensome. The ability to upstream dividends within regulatory requirements in 2003 provides approximately 2.5 times cash cover of interest expense and shareholder dividends.”
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