Delphi Calls for Notes Redemption - Analyst Blog

Earlier during the week, Delphi Financial Group Inc. (DFG), a provider of integrated employee benefit services, announced the redemption of $50.0 million in 8.00% senior notes due 2033. The redemption date is set for September 21, 2010.

The outstanding principal amount of the notes would be $68.8 million after the redemption. The redemption is being done at par value plus accrued interest to − but not including − the redemption date.

The notes with an aggregate principal amount of $125 million were originally issued in May 2003. The proceeds were used to repay $120.8 million of debt obligation.

Last month, Delphi also redeemed $20.0 million in the same series of notes. Its debt reduction move denotes the company’s latest measure in its longstanding financial strategy to de-leverage its balance sheet and strengthen capital structure.

It is expected that the two redemption would to bring down interest expense by approximately $2 million annually.

As of June 30, 2010, Delphi had a debt-to-capital ratio of 19%, no short-term debt obligation and a comfortable $96 million of holding company financial resources. Besides, its regulatory capital level at its operating subsidiaries remains relatively robust.

Earlier during the month, Delphi announced a 10% hike in quarterly dividend to 11 cents from 10 cents paid in the previous quarter.

Delphi had an excellent second quarter and a good first half of 2010, with solid operating earnings and record levels of shareholders’ equity. Book value per share increased 10% from the end of 2009 to $26.74 as of June 30. Operating earnings in the quarter came in at 83 cents per share, a penny ahead of the Zacks Consensus Estimate of 82 cents, benefiting from strong underwriting profits across its insurance businesses.

On the back of an improved performance in the first half of 2010, management expects earnings per share to trend toward the higher range of its guidance of $3.20 – $3.50 per share provided in February 2010.
 
We hold a Neutral recommendation on the shares of Delphi, which carry a Zacks #3 Rank, indicating no clear directional pressure on the shares in the near term.