Ace Sells $5.3 Billion of Bonds for Chubb Deal

By Cordell Eddings and | October 28, 2015

Ace Ltd. yesterday sold $5.3 billion of bonds to finance its acquisition of Chubb Corp.

The debt sale, which will help close a deal valued at about $30 billion, was issued in four parts, with the longest portion, a 30-year bond, yielding 1.5 percentage points more than comparable government securities, Bloomberg data show.

[Ace said it agreed to sell in a public offering $1.3 billion of 2.30 percent senior notes due in 2020, $1.0 billion of 2.875 percent senior notes due in 2022, $1.5 billion of 3.35 percent senior notes due 2026 and $1.5 billion of 4.35 percent senior notes due in 2045. The notes are guaranteed by Ace.]

The Chubb deal, announced in July, will be paid roughly half in stock and the rest in cash and debt. Ace, led by Chief Executive Officer Evan Greenberg, forecast annual savings of about $650 million by the third year after closing. The deal will help the Zurich-based company to compete against rivals such as American International Group Inc. and Allianz SE.

“The combined company’s strong earnings power will enable it to reduce debt within a reasonable time frame,” Rob Haines and Josh Esterov, analysts at CreditSights Inc., wrote in a note to clients. “The new debt looks attractive.”

If the Chubb acquisition isn’t consummated or the merger agreement is terminated by Sept. 30, 2016, Ace will be required to redeem all of the notes at a price equivalent to 101 percent of the principal amount, plus accrued and unpaid interest, according to the person with knowledge of the deal.

“This integration will be far more operationally taxing than any Ace has previously tackled,” Josh Stirling, a Sanford C. Bernstein analyst with an “outperform” rating on the stock, said in an Oct. 21 note. “We believe Ace is a well-run firm, which we wouldn’t be recommending if we didn’t think it had learned from the obvious lessons of the industry’s history.”

Ace shares have declined 0.3 percent this year, trailing the 0.3 percent gain in the Standard & Poor’s 500 Index. The Bloomberg World Insurance Index has dropped 4.4 percent.

–With assistance from Christie Boyden in New York.

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