S&P Rates AEGON's Perpetual Sub Bond A+; Outlook Neg.Business Editors
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 A Subordinated bond is a bond that has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy. In case of liquidation, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, and so on. to be issued by AEGON N.V. on May 19, 2000. Furthermore, Standard & Poor's today also affirmed af·firm
v. af·firmed, af·firm·ing, af·firms
1. To declare positively or firmly; maintain to be true.
2. To support or uphold the validity of; confirm.
v.intr. 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 Market Capitalization
A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. . 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 Subordinated Debt
A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". , which will improve the quality of AEGON's capital base.
AEGON N.V.'s double-'A' senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. 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 ING Groep N.V. (NYSE: ING, Euronext: INGA) (known as ING Group) is a financial institution of Dutch origin offering banking, insurance and asset management services. ING once stood for Internationale Nederlanden Groep. ), and owns 100% of Scottish Equitable Scottish Equitable is an investment company located in Edinburgh, Scotland.
Founded in 1831, Scottish Equitable has grown steadily in size and expertise to become one of the most experienced companies in the financial sector. Scottish Equitable are a brand of Aegon UK. 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 according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Standard & Poor's capital model.
-- Excellent operating performance. Group earnings are excellent, with return on equity and pretax pre·tax
Existing before tax deductions: pretax income.
pretax adj [profit] → vor (Abzug der) Steuern return on assets Return on assets (ROA)
Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/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 Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay , 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 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 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.