S&P Rates AEGON's Perpetual Sub Bond A+; Outlook Neg.
LONDON--(BUSINESS WIRE)--Standard & Poor's
May 10, 2000--Based on a draft prospectus, Standard & Poor's today assigned its proposed single-'A'-plus debt rating to the new euro (Eur) 250 million perpetual cumulative subordinated bond to be issued by AEGON N.V. on May 19, 2000. Furthermore, Standard & Poor's today also affirmed its ratings on AEGON N.V. (listed below). AEGON N.V. is the holding company of AEGON group, the fourth-largest global insurance group by market capitalization. The outlook is negative.
The rating on this bond reflects the bondholders' level of subordination to senior creditors. This bond is treated as hybrid equity, when measuring AEGON's capital adequacy and financial leverage, because of the equity-like characteristics of the structure. The proceeds will be used to pay down existing senior unsecured or dated subordinated debt, which will improve the quality of AEGON's capital base.
AEGON N.V.'s double-'A' senior unsecured debt rating is based on the group's overall superior business position, extremely strong risk-adjusted capital, and excellent operating performance. These strengths mitigate the group's relatively high financial leverage and appetite for large acquisitions.
Major rating factors:
-- Equity like characteristics. AEGON N.V. has the option to defer interest payment on the bond if no dividend is paid on common shares. Like common equity, the bond has no maturity date. Capital raised by the issue provides a cushion for AEGON N.V.'s senior creditors. Furthermore, the bond is expected to remain a long-term feature of the group's capital structure, despite the issuer's option to repay the bond in five years. If this option is exercised, Standard & Poor's expects the repayment to be financed with equity or similar hybrid equity and not debt.
-- Superior business position. AEGON is a leading player in U.S. life insurance, is the second-largest life insurer in the Netherlands behind Nationale Nederlanden (ING group), and owns 100% of Scottish Equitable PLC (AAA/Negative/--), which has a leading share of U.K. pensions sold by independent advisers.
-- Extremely strong capitalization. At year-end 1999, the group's available capital covered its risk-adjusted requirements by more than 2.2 times, according to Standard & Poor's capital model.
-- Excellent operating performance. Group earnings are excellent, with return on equity and pretax return on assets averaging a healthy 14.3% and 144 basis points, respectively, over the past five years. Over the same period, net income has grown 27% per year to Eur1.57 billion in 1999. This growth has been driven by a 36% increase per year in pretax life profits to Eur2.13 billion in 1999.
-- Leverage. Relative to its peers, AEGON makes more extensive use of debt financing, with 1999 year-end financial leverage at 19.4%. This ratio excludes Eur3 billion debt used to finance the acquisition of Transamerica Finance Corp.'s (A/Watch Dev/A-1) noninsurance businesses, operational debt used in banking operations, and other hybrid debt that has equity characteristics.
-- Acquisition risks. AEGON has a history of successfully conducting and integrating large acquisitions. This activity adds risk to the rating as evident from the planned disposal of Transamerica Finance Corp. businesses. AEGON's management is expected to bring this situation to a satisfactory resolution, and to use any sale proceeds to pay down acquisition funding within a reasonable timeframe. Failure to do so would lead to a ratings review.
The outlook is driven by concerns over financial leverage. Without adjustments, consolidated leverage and coverage ratios are already hitting tolerance levels for the rating category. In the short term, Standard & Poor's expects AEGON to reduce group leverage and demonstrate stronger fixed-charge coverage in order to retain the current rating.---CreditWire
ISSUER CREDIT RATING AEGON N.V. Counterparty credit rating AA/Negative/A-1+ NEW RATING AEGON N.V. Euro 250 million perpetual cumulative subordinated bond A+ AFFIRMED RATINGS AEGON N.V. Senior unsecured debt rating AA Commercial paper rating A-1+ Subordinated debt rating AA- AEGON Funding Corp. Commercial paper(1) A-1+ (1) Guaranteed by AEGON N.V.
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|Date:||May 10, 2000|
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