Note Offering from Unum Group - Analyst Blog

Unum Group (UNM) sold senior unsecured notes worth $400 million bearing a coupon of 5.625% and maturing on June 15, 2020. The company increased the offer size from $300 million planned earlier.

 

Unum Group offered the debentures at 99.879% of face value to yield 5.641% if held till maturity.

 

Unum Group intends to deploy the proceeds from the offering to repay in full $225 million 7.625% senior notes maturing in March 2011 as well as for general corporate purposes.

 

Rating agency A.M. Best Co. assigned a debt rating of "bbb-" to the senior unsecured notes. The rating outlook is positive.

 

Also, rating agencies Standard & Poor's Ratings Services (S&P) has issued a "BBB-" rating to these senior notes, Moody's Investor Service of Moody's Corp. (MCO) assigned a "Baa3" rating to the same, while another rating agency Fitch assigned a "BBB" rating to the notes.

 

Unum Group ended the second quarter of 2010 with a total debt balance of $2.49 billion, compared with $2.55 billion at the end of fiscal 2009, reflecting a reduction of $6 billion in the first half of 2010. The debt-to-capital ratio was 21.9% at second quarter-end, lower than 23.1% at fiscal 2009 end.

 

With the issuance of $400 million of debt, the debt-to-capital ratio will increase to 24.6%.

 

As the company is repaying debt bearing a higher coupon rate by issuing debt with a lower coupon, the interest cost incurred by the company will go down. Interest and debt expenses were $34.1 million in the second quarter, higher than $30.4 million in the prior-year quarter.

 

Unum Group reported its strong second-quarter operating earnings of 69 cents per share, surpassing both the Zacks Consensus Estimate and the prior-year results. Improved performance in Unum U.S., Colonial Life and Individual Disability-Closed Block segments, partially offset by a decline in Unum UK, aided the outperformance.

 

The company anticipates operating earnings growth for full-year 2010 in a range of 4%-6%, which implies an EPS range of $2.67-$2.72.

 

The Zacks Consensus Estimate for third-quarter 2010 earnings is 68 cents per share. For full year 2010 and 2011, the Zacks Consensus Estimates are, $2.74 per share and $3.02 per share, respectively.

 

We maintain a "Neutral" recommendation on Unum Group. 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 Chattanooga, Tennessee, Unum Group was created following the June 1999 merger of Provident Companies Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services.