A.M. Best Co. has assigned a rating of "bb+" to the $250 million 5.25% convertible senior unsecured notes issued by American Equity Investment Life Holding Company. The financial strength rating of B++ (Very Good) of American Equity's insurance subsidiaries is unaffected. The outlook for all ratings is stable.
The notes are scheduled to mature in December 2024, are convertible into the company's common stock under certain circumstances, callable after seven years and contain a put option provision. The put provision becomes exercisable upon a change of control or at predetermined maturity dates beginning in December 2011. Additionally, the notes offer a contingent interest option that provides certain tax advantages to the organization. The proceeds from the offering are expected to enhance American Equity's liquidity position and insurance subsidiary capitalization as funds are downstreamed to support future business growth.
A.M. Best notes that American Equity's overall financial leverage has increased significantly but is within acceptable limits for its current rating category. A.M. Best expects that American Equity's interest coverage will remain adequate, particularly in light of its improved operating earnings. However, A.M. Best notes that the increase in leverage, coupled with American Equity's existing asset/liability mismatch and aggressive business development plans, could negatively impact the company's prospective earnings, particularly in a rapidly rising interest rate environment. American Equity's capital on a qualitative basis is somewhat diluted by a high deferred acquisition cost (DAC)/equity ratio relative to the industry, which is partially offset by strong surrender charge protection and high remaining surrender periods. Additional factors offsetting these concerns include American Equity's improving operating profile and its strong market position within the equity indexed annuity marketplace.
The following debt rating has been assigned:
American Equity Investment Life Holding Company--
-- "bb+" on $250 million 5.25% convertible senior unsecured notes, due 2024
For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/debt.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.