NU Online News Service, March 13, 2003, 6:23 p.m. EST – UnumProvident Corp., Chattanooga, Tenn., says it’s pleased that Fitch Ratings, New York, and Standard & Poor’s Ratings Services, New York, are still giving its insurance units A’s for financial strength.
Both agencies lowered their financial-strength ratings for the insurance units one notch Thursday, from an earlier rating of A plus.
Both agencies lowered the parent company’s credit rating one notch, to BBB.
But the agencies say they limited the downgrades to one notch because they believe UnumProvident will soon raise capital on Wall Street.
“The current ratings reflect Standard & Poor’s expectation that Unum will be successful in its capital-raising initiatives within about one month,” S&P says in a discussion of its ratings moves.
Fitch says its current ratings assume that UnumProvident will use reinsurance, private placements and other strategies to raise capital and restructure its balance sheet.
UnumProvident is having temporary trouble raising capital because of discussions with the U.S. Securities and Exchange Commission about how it accounts for problems with speculative-grade securities, according to the rating agencies.
But, even if UnumProvident had to write off $628 million in speculative-grade securities that have been sitting in the “gross unrealized loss” column for at least 181 days, the write-off would not push the Fitch ratings down more than two notches, Fitch says.
S&P notes that UnumProvident has a strong position in the U.S. disability insurance market and strong cash flows, and Fitch and S&P both emphasize that UnumProvident has no debt maturing until 2005.
“Standard & Poor’s believes that these strong fundamentals will be the reasons that Unum will be able to get the capital it seeks shortly, although coverage is likely to be relatively low with the expected high costs of capital,” S&P says.
UnumProvident put out a statement saying that the current A ratings from Fitch and S&P are reflective of its current strong financial strength.
“We are also pleased that both agencies expressed confidence in our ability to execute our capital plan, and maintain the A rating once it is successfully completed,” the company says.
Investors reacted to the ratings news by pushing the price of UnumProvident shares up 6.29%, to $6.93.