Fitch Assigns 'BBB-(EXP)' Rating to SBL Holdings' Proposed Senior Note Issuance
(The following statement was released by the rating agency)Fitch Ratings-Chicago-05 February 2021:
Fitch Ratings has assigned a rating of 'BBB-(EXP)' to SBL Holdings, Inc.'s (SBLH) proposed issuance of senior unsecured notes. The ratings previously assigned to SBLH and its insurance operating subsidiaries are unaffected by this rating action.
Key Rating Drivers
The notes have been assigned a rating one notch below SBLH's LT IDR, which reflects standard notching based on Fitch's insurance rating criteria.
Financial leverage is not expected to be affected materially, as SBLH plans to use the proceeds of the issuance to make a partial repayment on the outstanding balance of the company's revolving line of credit. As a result, financial leverage, as measured by Fitch, is expected to remain below the 25% rating sensitivity. GAAP based fixed-charge coverage is expected to remain strong and in line with Fitch's rating expectations over the near to intermediate term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
-- A positive rating action is prefaced by Fitch's ability to reliably forecast coronavirus-related effects on the financial profile of both the U.S. life insurance industry and SBLH;
-- A material decline in Fitch's view of asset risk, including the decline in short-term loans as a percentage of invested assets, while maintaining a PRISM score well into the "Strong" category;
-- Financial leverage below 20%;
-- GAAP interest coverage greater than 10x;
-- GAAP ROE of 15% or greater.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
-- A material adverse change in Fitch's Ratings Assumptions with respect to the effects of the coronavirus;
-- Deterioration in the quality of the asset portfolio;
-- Sustained deterioration in capital resulting in a PRISM score below the "Strong" category;
-- Deterioration in SBLH's operating performance such that GAAP ROE falls below 10%;
-- GAAP interest coverage of less than 7x;
-- Financial leverage above 25%.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
Date of Relevant Committee 20 April 2020
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Unless otherwise disclosed in this section, the highest level of Environmental, Social and Corporate Governance (ESG) Credit Relevance is a Score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
SBL Holdings, Inc.
----senior unsecured; Long Term Rating; Expected Rating; BBB-(EXP)
Primary Rating Analyst
+1 312 368 3207
Fitch Ratings, Inc.
One North Wacker Drive
Chicago, IL 60606
Secondary Rating Analyst
Jamie Tucker, CFA, CPA
+1 212 612 7856
Julie Burke, CFA, CPA
+1 312 368 3158
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Additional information is available on www.fitchratings.com
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Prism U.S. Life Insurance Capital Model, v1.2.0-2018 (1)
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