CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign a rating of 'BBB+' to American International Group, Inc.'s (AIG) $1.2 billion issuance of 3.875% senior notes due 2035 and $800 million issuance of 4.375% senior notes due 2055.
KEY RATING DRIVERS
These new issues are rated equivalent to the ratings of AIG's existing senior debt. Proceeds from the issue will be used for general corporate purposes.
The company's consolidated financial leverage continued to decline in 2014 as the new debt issuance was more than offset by redemptions and purchases of outstanding AIG debt and the elimination of debt related to the completed sale of the International Lease Finance Corporation (ILFC) aircraft leasing operations in May 2014.
Lower interest costs on recently issued debt and recent stable earnings for AIG's property/casualty and life & retirement operations have fostered an improvement in interest coverage levels. For the first nine months of 2014, AIG's fixed charge coverage ratio improved to 9.6x versus 6.1x for the same period in 2013.
Financial leverage as measured by the ratio of financial debt and preferred securities to total capital (excluding operating debt and the impact of FAS 115) was 18% at Sept. 30, 2014. Consolidated financial leverage including operating debt was 27% at Sept. 30, 2014 down from 40% at year-end 2013. This new debt issuance is offset somewhat by maturing debt obligations in 2015 that lead to an anticipation for limited changes in AIG's financial leverage in 2015.
Fitch affirmed the ratings of AIG and its insurance operating subsidiaries with a Stable Outlook on Aug. 28, 2014.
RATING SENSITIVITIES
Key triggers that could lead to future rating upgrades include:
--Demonstration of higher and more consistent earnings within Property/Casualty or Life and Retirement operating segments that translate into average earnings-based interest coverage above 10.0x. This would correspond with insurance pre-tax operating earnings of approximately $14 billion;
--Further improvement in AIG's capital structure and leverage metrics that reduce the company's TFC ratio to below 0.5x;
--Continued improvement in the operating earnings of the Life and Retirement segment which could lead to an upgrade of those subsidiary ratings;
--A shift to modest sustainable breakeven or better underwriting results, with greater loss reserve stability or reserve redundancies could lead to an upgrade of property/casualty subsidiary IFS ratings.
Key triggers that could lead to a future rating downgrade include:
--Increases in financial leverage as measured by financial debt-to-total capital to a sustained level above 30%, or a material increase in the TFC ratio from current levels;
--Significant reductions in debt servicing capacity from holding company assets and available dividends from subsidiaries to a level below 6x annual interest on financial debt;
--Large underwriting losses and/or heightened reserve volatility of the company's non-life insurance subsidiaries that Fitch views as inconsistent with that of comparably-rated peers and industry trends;
--Deterioration in the company's domestic life subsidiaries' profitability trends;
--Material declines in risk-based capital ratios at either the domestic life insurance or the non-life insurance subsidiaries, and/or failure to achieve the above noted capital structure improvements.
Fitch expects to assign the following ratings:
--USD 1.2 billion of 3.875% senior unsecured notes due 2035 'BBB+'.
--USD 800 million of 4.375% senior unsecured notes due 2055 'BBB+'.
Fitch currently rates the AIG entities as follows:
American International Group, Inc.
--Long-term IDR 'A-';
--Various senior unsecured note issues 'BBB+';
--USD250 million of 2.375% subordinated notes due Aug. 24, 2015 'BBB';
--EUR61.8 million of 6.797% senior unsecured notes due Nov. 15, 2017 'BBB+';
--GBP537 million of 6.765% senior unsecured notes due Nov. 15, 2017 'BBB+';
--USD 1 billion of 2.3% senior unsecured notes due July 16, 2019 'BBB+';
--USD1 billion of 3.375% senior unsecured notes due Aug. 15, 2020 'BBB+';
--USD1.286 billion of 6.4% senior unsecured notes due Dec. 15, 2020 'BBB+';
--USD1.5 billion of 4.875% senior unsecured notes due June 2022 'BBB+';
--USD1 billion of 4.125% senior unsecured notes due Feb. 15, 2024 'BBB+';
--USD256.161 million of 6.820% senior unsecured notes due Nov. 15, 2037 'BBB+';
--EUR56.6 million of 8.00% series A-7 junior subordinated debentures due May 22, 2038 'BBB-';
--USD 2.25 billion of 4.5% senior unsecured notes due July 16, 2044 'BBB+';
--USD2,832.3 billion of 8.175% series A-6 junior subordinated debentures due May 15, 2058 'BBB-';
--GBP172.6 million of 5.75% series A-2 junior subordinated debentures due March 15, 2067 'BBB-';
--EUR356.2 million of 4.875% series A-3 junior subordinated debentures due March 15, 2067 'BBB-';
--GBP84.1 million of 8.625% series A-8 junior subordinated debentures due May 22, 2068 'BBB-';
--USD496.2 million of 6.25% series A-1 junior subordinated debentures due March 15, 2087 'BBB-';
--USD113.2 million of 5.60% senior unsecured notes due July 31, 2097 'BBB+'.
AIG International, Inc.
--Long-term IDR 'A-'.
AIG Life Holdings, Inc.
--Long-term IDR 'A-';
--USD135.5 million of 7.50% senior unsecured notes due July 15, 2025 'BBB+';
--USD150 million of 6.625% senior unsecured notes due Feb. 15, 2029 'BBB+';
--USD251 million of 8.50% junior subordinated debentures due July 1, 2030 'BBB-';
--USD201 million of 7.57% junior subordinated debentures due Dec. 1, 2045 'BBB-';
--USD405.9 million of 8.125% junior subordinated debentures due March 15, 2046 'BBB-'.
AGC Life Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
United States Life Insurance Company in the City of New York
--IFS rating 'A+'.
AIU Insurance Company
American Home Assurance Company
AIG Assurance Company
AIG Europe Limited
American International Overseas Limited
AIG Property Casualty Company
AIG Specialty Insurance Company
Commerce & Industry Insurance Company
Granite State Insurance Company
Illinois National Insurance Company
Insurance Company of the State of Pennsylvania
Lexington Insurance Company
National Union Fire Insurance Company of Pittsburgh, PA
New Hampshire Insurance Company
--IFS rating 'A'.
ASIF Global Financing
--USD750 million of 6.9% senior secured notes due March 15, 2032 'A+'.
ASIF II Program
--GBP200 million of 6.375% senior secured notes due Oct. 5, 2020 'A+';
--USD82 million of 0% senior secured notes due Jan. 2, 2032 'A+'.
ASIF III Program
--CHF150 million of 3% senior secured notes due Dec. 29, 2015 'A+';
--GBP350 million of 5.375% senior secured notes due Oct. 14, 2016 'A+';
--GBP250 million of 5% senior secured notes due Dec. 18, 2018 'A+';
--EUR200 million of 1.66% senior secured notes due Dec. 20, 2024 'A+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Sept. 9, 2014.
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=967955
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