Fitch Assigns 'BB-' to American Equity Investment Life Holdings $250MM 144a Debt Offering.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has assigned a 'BB-' senior debt rating to American Equity Investment Life Holding Co.'s (AEL AEL Association Electronique Libre AEL Appalachia Educational Laboratory AEL Arabisch Europese Liga AEL Agence de l'Energie AEL Arab European League AEL Accessible Emission Limit AEL Acceptable Exposure Limit AEL Arquivo Edgard Leuenroth ) $250 million contingent, convertible, senior debt due 2024 recently issued under SEC Rule 144a Rule 144A A Securities & Exchange Commission rule modifying a two-year holding period requirement on privately placed securities to permit qualified institutional buyers to trade these positions among themselves. . At the same time, Fitch has assigned a 'BBB' insurer financial strength (IFS) rating to AEL's subsidiary life insurers, American Equity Investment Life Insurance Company (American Equity Investment Life) and American Equity Investment Life Insurance Company of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of (American Equity Life of New York). The Rating Outlook is Stable. Rationale for AEL's senior debt rating includes elevated levels of financial leverage at approximately 55% debt and preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. at the holding company level after the issuance of the $250 million of senior debt. Fitch's equity adjusted financial leverage that gives equity credit for trust preferred securities is approximately 48% and does not include notes payable to a related party service company. As a result of rapid growth in recent years, the company has a large DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter asset on its balance sheet, exceeding 210% of shareholders equity at Sept. 30, 2004, reducing the quality of GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). equity. Statutory cash dividend, fixed-charge coverage fixed-charge coverage The number of times that a firm's operating income exceeds its fixed payments. Fixed-charge coverage is a measure of a firm's ability to meet contractually fixed payments, with high coverage indicating significant flexibility for making for 2005 is expected to be approximately 2 times (x) while GAAP-based EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). coverage is expected to be greater at approximately 4x. Fitch believes that the positive GAAP based earnings trend could improve coverage levels. The notes are unsecured obligations of AEL and pay interest of 5.25% with a contingent interest contingent interest n. an interest in real property which, according to the deed (or a will or trust), a party will receive only if a certain event occurs or certain circumstances happen. feature beginning in 2012. The notes mature Dec. 6, 2024, and may be not be redeemed by the company before Dec. 15, 2011. Holders of the notes may require AEL to repurchase all or a portion of their notes on Dec. 15, 2011, 2014 and 2019. Fitch views the put feature as potentially limiting the permanency per·ma·nen·cy n. Permanence: tourists who were in awe of the permanency of the great pyramids of Egypt. Noun 1. of the capital to AEL. The notes are convertible under certain circumstances into cash and shares of AEL's common stock at an initial conversion price of $14.47 per share. Rationale for the 'BBB' IFS rating for AEL's main operating subsidiary, American Equity Investment Life, include the company's position as a leading producer in the U.S. equity index annuities marketplace, strong service to its national marketing organization based distribution, improving GAAP earnings profile, and low credit risk in its asset portfolio. Substantially, all the proceeds from the offering are expected to be contributed over time to American Equity Life to increase the capital and surplus position and support future growth. Fitch's concerns include AEL's business line concentration and rapid growth with over 95% of its earnings tied to fixed and equity index annuities. Fitch views AEL Life as currently adequately capitalized, but believes that statutory capitalization could be pressured in the future due to strong projected sales growth. American Equity Life of New York's 'BBB' IFS rating is based upon Fitch's consideration that the company is a core operation of American Equity Life Investment. Fitch also believes that AEL Life has elevated levels of operational risk due to its asset liability profile. Fitch observes that many of AEL products are designed with features to reduce lapses in its annuity book of business and that its equity index annuity products have adequate hedge management. However, Fitch believes that the current bond portfolio has above average interest rate risk, especially in rising interest rate scenarios due to its large investment in zero coupon, long duration federal agency securities. In addition, in declining interest rate scenarios earnings and surplus could be pressured due to reinvestment risk present in the significant investment in callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. , federal agency securities. Fitch views favorably AEL's progress in enhancing its asset liability management techniques and in taking investment strategy initiatives to diversify its investment portfolio in conjunction with asset growth. NOTE: The noted ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on public information.
A[micro] Entity/Issue/Type Action Rating/Outlook
A[micro] American Equity Investment Life Holding Company
A[micro] -- Long-term rating Assign 'BB-'/Stable;
A[micro] -- $250MM convertible notes Assign 'BB-'/Stable;
5.25% due 2024, senior
debt rating,
A[micro] -- Trust preferred stock Assign 'B+'/Stable.
A[micro] American Equity Investment Life Holding Company
A[micro] -- Insurer financial strength Assign 'BBB'/Stable.
A[micro] American Equity Investment Life Holding Company of New York
A[micro] -- Insurer financial strength Assign 'BBB'/Stable.
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