ACE Limited Offers Notes - Analyst Blog

ACE INA Holdings Inc., a subsidiary of ACE Limited (ACE), will sell senior notes worth $700 million, bearing a coupon of 2.60%, which mature in November 2012. The company increased the offer size from $500 million planned earlier.

Rating agency A.M. Best Co. has assigned a debt rating of “a-” to these senior unsecured notes. The rating outlook is positive.

The company intends to deploy the net proceeds to refinance existing and maturing debt.

ACE Limited ended the third quarter of 2010 with total debt of $3.3 billion, down 6% year over year. The debt-to-capital ratio was 12.7% at third quarter-end, lower than 15.8% at third quarter 2009-end. Its debt-to-capital ratio is better than its nearest peer, The Travelers Companies (TRV), with the latter's debt-to-capital ratio of 18.6%.

With the issuance of $700 million of debt, the debt-to-capital ratio at ACE Limited will increase by 220 basis points, but will still remain below third-quarter 2009 levels.

We also expect interest expenses to increase with the sale of new notes. The company incurred $58 million of interest expenses in the third quarter, down 3% over the prior-year period.

ACE Limited reported third-quarter 2010 net income of $2.01 per share, beating the Zacks Consensus Estimate of $1.84. However, results lagged earnings of $2.07 per share reported in the year-ago period. During the third quarter conference call, management raised its operating income guidance to a range of $7.20–$7.40 per share for full year 2010 from the previously guided range of $6.25–$6.75.

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.85 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $7.57 per share and $7.47 per share.

We maintain our Neutral recommendation on ACE Limited. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Zurich, Switzerland, ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to commercial and individual customers worldwide.

 
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