Allianz to Raise $5.24 Billion with New Debt Offerings; Best Rates Issues ‘aa-‘

January 27, 2005

Allianz AG said it was taking “advantage of attractive capital market conditions to launch an innovative financing transaction. The German giant plans an “All-in-one” package, with the launch of three capital market transactions totaling approximately 4 billion euros ($5.24 billion).

The company announcement stressed that the securities will not be registered with the U.S. Securities and Exchange Commission, and that no sale or offer for sale is planned for the United States.

Allianz said that as a result of these transactions it will both reduce its exposure to equities as well as improve overall group leverage. In addition, Dresdner Bank will further reduce its non-strategic asset portfolio. The transaction will further strengthen Allianz’s capital position on a group basis. “Through this package of capital market transactions, we will already have achieved our main 2005 financing goals by January,” stated Paul Achleitner, Allianz CFO.

The announcement gave the following details: Allianz is issuing a three-year index linked note of up to 1.2 billion euros [$1.57 billion) today. The redemption value of this security, BITES [Basket Index Tracking Equity-linked Securities], is linked to the performance of the DAX [The German Stock Exchange Index]. Allianz can choose to redeem the notes in shares of BMW, Munich Re or Siemens. The BITES will be placed with international institutional investors through JPMorgan. As a result of this transaction, Allianz will further reduce its equity gearing, i.e. the ratio of equity holdings to shareholders equity less goodwill, to an anticipated level of under 1.0x.
“Allianz will refinance part of this year’s 2.7 billion euros [$3.53 billion] of maturing bonds through the issuance of a subordinated bond in the amount of approximately 1 billion euros [$1.31 billion]. The bond will be in perpetual form with Allianz having the right to call the bond after 12 years. The exact amount, coupon as well as yield will be determined at the end of the book-building period. Attached to the bond will be 11.2 million warrants on Allianz shares with a maturity of three years. Following the issuance of this bond, the warrants will be detached and placed in firm hands, thereby avoiding any material impact on the Allianz share price. The bond ex-warrants will be placed with institutional investors through Dresdner Kleinwort Wasserstein.”

Allianz also said part of the refinancing would be aimed at further reducing its non-strategic equity holdings, notably in Dresdner Bank. The bank will sell 17.2 million Allianz shares, with a market value of approximately 1.5 billion euros ($1.96 billion) to investment bank JPMorgan. Morgan will then “place these shares in the market in the form of a Mandatory Exchangeable,” said the announcement.

“This structure will enable Allianz Group to benefit from a portion of Allianz’s future share price appreciation. In addition, Dresdner Bank will transfer to Allianz its stake of 7.3 percent in Munich Re, equivalent to approximately 1.5 billion euros, via an intra-group transaction. These Munich Re shares will therefore be available to repay the redemption value of the BITES securities.”

A.M. Best Co. announced that it has assigned a rating of “aa-” to “the forthcoming Basket Index Tracking Equity Linked senior debt note to be issued by Allianz Finance II B.V. and guaranteed by Allianz Aktiengesellschaft (Allianz AG) (Germany).” Best also assigned an “a” rating to the forthcoming subordinated bond to be issued or guaranteed by Allianz AG. The outlook for both ratings, however, is negative.

“These issues will be partially utilised to replace existing debt (approximately EUR 2.7 billion [USD 3.5 billion]) expiring this year,” Best continued. “The redemption of the three-year senior index-linked note is linked to the German share index.”

Best also noted that the “subordinated bond issue is junior to all other existing subordinated debt and has equity characteristics, according to A.M. Best guidelines. (See Best’s Rating Methodology at http://www.ambest.com/ratings/methodology.asp.) As such, the proceeds from this issue will be treated as equity in the quantitative assessment of Allianz’s consolidated risk-based capital in line with A.M Best’s tolerance levels.”

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