Oct. 7, 2009 (Business Wire) -- Fitch Ratings has assigned a 'BBB' rating to Protective Life Corp.'s (NYSE: PL) issuance of $800 million senior notes. On Oct. 6, 2009, PL issued $400 million of 7.38 senior notes due Oct. 15, 2019 and $300 million of 8.45 senior notes due Oct. 15, 2039. Today it issued $100 million of 8% senior retail notes due in 2024. The Rating Outlook is Negative.
PL intends to use the proceeds of the notes to purchase $800 million of surplus notes of Golden Gate Captive Insurance Company (Golden Gate), a South Carolina special purpose financial captive wholly owned by PL's primary life operating company, Protective Life Insurance Co. (PLICO). Golden Gate was established to fund statutory reserve requirements related to level term life insurance products of PLICO and its subsidiaries. Golden Gate intends to use the proceeds of its new surplus notes issuance to repurchase and cancel $800 million of surplus notes previously issued to third-party purchasers.
Fitch views the senior debt issuance and surplus note refinancing as a positive step in reallocating capital between PLICO and Golden Gate. Previously, Fitch had expressed concerns regarding the statutory capitalization of PL's primary life insurance subsidiaries, which have been under pressure due to investment losses and reserve strain associated with the company's term life insurance business.
The Negative Outlook reflects uncertainties associated with the reserve financing efforts, the reserve credit on reinsurance as well as the ultimate realization of future investment losses.
The ratings continue to reflect the company's favorable earnings performance, strong liquidity, and good competitive position in the U.S. life insurance market. Fitch believes that PL's favorable earnings performance, which has been materially better than peers, reflects the company's concentration in the individual life insurance business, limited variable annuity exposure, and focused management approach.
The newly-issued notes replace existing notes, thus total leverage does not change as a result of the transaction. However, Fitch anticipates that the newly-issued debt will initially increase interest payments moderately because the interest rate on the newly-issued senior notes exceeds the current rate on the repurchased surplus notes.
PL maintains a good competitive position in the individual life insurance market. Fitch notes that the company is increasing its focus on the sale of universal life insurance products, and deemphasizing the sale of capital intensive term life insurance products.
Fitch rates Protective Life Corporation's new debt issuance as follows:
--$400 million of 7.38% senior notes due Oct. 15, 2019 at 'BBB';
--$300 million of 8.45% senior notes due Oct. 15, 2039 at 'BBB';
--$100 million of 8.00% senior retail notes due Oct. 15, 2024 at 'BBB'.
Additional information is available at www.fitchratings.com.
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