A.M. Best Co. has assigned debt ratings of “a-” to the forthcoming aggregate $1.5 billion senior unsecured notes due 2012, 2017 and 2037 to be issued by The Travelers Companies, Inc. (Travelers) (St. Paul MN) [NYSE:TRV]. The outlook for the ratings is stable.
Travelers intends to use the net proceeds of the senior notes issuance to repay $443 million of senior notes maturing in August 2007, $42 million of medium-term notes maturing before year-end 2007 and for general corporate purposes. This offering follows shortly after the company’s $1.0 billion junior subordinated debentures due 2067 and issued in March 2007, the net proceeds of which were primarily used to redeem $857 million of convertible junior subordinated notes for cash in April 2007.
In 2007 and 2008, Travelers expects to continue repurchasing shares of its common stock primarily with liquid funds held at the holding company and internally generated dividends from its subsidiaries. Travelers’ liquidity is significant with $1.7 billion of liquid funds held at the holding company as of March 31, 2007. A.M. Best believes Travelers will maintain liquid funds in excess of $1.0 billion in 2007.
At year-end 2006, Travelers’ debt-to-total capital was 18.9%, down from 21.0% at year-end 2005. Taking into consideration the company’s redemption of $81 million of debt in January 2007, its $500 million of debt retired in March 2007, as well as the $1.0 billion junior subordinated debentures offering in March 2007, its debt-to-total capital stood at 19.7% at March 31, 2007. While Travelers’ debt-to-total capital is expected to temporarily rise modestly above 20% in second quarter 2007, due in part to its pre-funding of the maturing debt in August 2007, A.M. Best anticipates it will fall below 20% again by the end of third quarter 2007 and remain below that level through year end.
Given the strong risk-adjusted capitalization of the Travelers Insurance Companies (St. Paul, MN) and its strong earnings outlook in the near term, A.M. Best believes Travelers is well positioned to achieve its capital management plans in 2007.
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