Correction to Text, December 5, 2007 Release: Moody's rates MetLife's junior subordinated debentures Baa1
Approximately $500 million of securities affected.
New York, December 10, 2007 -- Substitute the first sentence of the second paragraph with the following:
"The Trust Securities have a scheduled maturity of 30 years and a final
maturity of 60 years." Revised release follows.
Moody's Investors Service today assigned a Baa1 rating to MetLife Capital
Trust IV's (ML Trust IV) $500 million Fixed-to-Floating
Rate Exchangeable Surplus Trust Securities (Trust Securities).
ML Trust IV is a subsidiary of MetLife, Inc. (MetLife;
NYSE: MET; senior debt at A2). According to Moody's,
the Baa1 rating reflects its view of loss given default and follows Moody's
current notching practices of rating junior subordinated debt with mandatory
triggers two notches below senior debt. The outlook for MetLife's
long term ratings is stable.
The Trust Securities have a scheduled maturity of 30 years and a final
maturity of 60 years. The securities are redeemable after 2032,
but are subject to a Replacement Capital Covenant, which requires
MetLife to replace the debentures with securities that have equal or greater
equity content. Interest is fixed rate until 2037, at which
time interest converts to floating rate.
Proceeds of the Trust Securities will be used to purchase 30 year Surplus
Notes issued by Metropolitan Life Insurance Company (MLIC, rated
Aa2 for insurance financial strength with a stable outlook.) The
MLIC Surplus Notes are the primary asset of ML Trust IV. At MetLife's
option, or automatically under certain circumstances, the
Trust Securities may be exchanged for Junior Subordinated Notes of MetLife
that have interest and principal terms identical to the Trust Securities.
Exchange of the Trust Securities is required if any of the following occurs:
1) distributions on the Trust Securities have been deferred for five years;
2) there is a breach of the Mandatory Trigger, 3) MLIC is in liquidation
or rehabilitation, 4) MetLife is in bankruptcy, 5) the Surplus
Notes have been redeemed before 2032, or 6) upon maturity of the
Surplus Notes in 2037.
If interest payments on the Trust Securities are optionally deferred,
they are cumulative and may be paid out of any source of cash for the
first five years. If interest payments on the Surplus Notes are
subject to regulatory deferral, MetLife may, at its option,
through a Financing Agreement between MetLife and ML Trust IV, continue
to pay interest on the Trust Securities, providing no Mandatory
Triggers have been breached. After five years of deferred payments,
any distributions made are subject to an alternative payment mechanism
and must be settled with proceeds from the sale of common stock or warrants
In addition to optional interest deferral, the Trust Securities
require mandatory suspension of interest payments if certain financial
tests are not met. Mandatorily deferred interest payments are also
subject to the alternative payment mechanism. The tests for mandatory
deferral consist of 1) the NAIC risk based capital ratio (RBC) below 175%
of Company Action Level for key life insurance subsidiaries or; 2)
(a) negative GAAP net income for the most recent trailing four quarter
period and, (b) equity decline of at least 10% over the most
recent eight quarter period and, (c) insufficient increase of equity
within the next two quarter period to an equity level that would have
avoided failing the second test (i.e. 2b).
Because of the equity-like features contained in the Trust Securities,
the security will receive Basket D analytic treatment on Moody's Hybrid
Debt-Equity Continuum and the rating agency will count it as 75%
equity and 25% debt for financial leverage calculations.
The security will receive Basket D treatment for the first 30 years,
Basket C treatment (50% equity and 50% debt) for the next
10 years, followed by Basket B treatment (25% equity and
75% debt) for the next 10 years, and Basket A treatment (100%
debt) for the final 10 years as the time to maturity decreases.
Interest will be treated as presented under GAAP and incorporated into
the earnings coverage ratio. During the period of time that the
Surplus Note interest payments are being paid into ML Trust IV to cover
the Trust Securities' interest, that portion of the Trust Securities
interest expense will be excluded from the cashflow coverage ratio.
The rating agency said that the main contributing equity-like features
of the security include the following:
a) No Maturity -- Strong - a degree of permanence
through the 60-year final maturity of the Trust Securities with
a 30-year scheduled maturity, subject to a legally enforceable
Replacement Capital Covenant (the RCC). Under the terms of the
RCC, MetLife is obligated not to redeem or repurchase the Trust
Securities before 2057 unless it has previously issued qualifying capital
securities, which have the same or more equity-like characteristics
and have been clearly specified. The RCC runs in favor of a specified
series of MetLife's senior indebtedness. MetLife will receive an
acceptable opinion from outside counsel regarding the enforceability of
the RCC in accordance with the laws of New York State.
b) No Ongoing Payments -- Strong - the ability to
suspend ongoing cash coupon payments on an optional basis and through
the breach of mandatory cash coupon deferral triggers described above.
At the occurrence of a mandatory trigger event, the Trust Securities
must be exchanged for Junior Subordinated Notes. If the triggers
are breached or after five years of optional deferral (which also results
in an exchange), MetLife is obligated to settle any distribution
payments through the issuance of common equity or warrants, of which
the underlying shares are limited to a lifetime cap of 15% of the
shares outstanding at the time the warrants are issued. Any distributions
not settled will be limited to a 25% claim in bankruptcy.
c) Loss Absorption -- Moderate - as a result of the
instrument's junior subordinated status with limited rights in the group's
capital structure upon exchange. Prior to liquidation, the
security ranks junior to policyholder claims and other indebtedness of
MLIC and pari passu with other MLIC surplus notes.
In assigning the ratings, Moody's cited MetLife's strong brand recognition,
leading market positions in both the individual and group life businesses,
a large career agent sales force, and the company's diversified
earnings and business mix. According to the rating agency,
MetLife has generated strong financial results, diversified its
distribution channels, and has continued to implement changes that
take advantage of expense savings and other synergies throughout its operations.
The rating agency noted that through the acquisition of the Travelers'
life insurance and annuity business from Citigroup in 2005, MetLife
has benefited from an increase in the size and scale of its operations,
improved market positions in individual life and individual annuities,
expanded distribution opportunities, and increased scope in its
However, the rating agency said that these strengths are somewhat
offset by the slow industry growth outlook for individual life products,
the company's growing exposure to institutional spread business,
and its increased, though moderating, financial leverage and
reduced cashflow coverage associated with the funding of the Travelers
acquisition. In addition, Moody's noted the group's shift
of business toward lower-margined asset accumulation products and
increased exposure to universal life business with secondary guarantees
and the associated AXXX statutory reserve requirements.
Moody's last rating action on October 26, 2007 when Moody's assigned
a Prime-1 rating to the funding agreement-backed U.S.
commercial paper notes ("CP"), Euro commercial paper notes,
and extendable notes issued by Beagle Funding LLC which is a commercial
paper program sponsored by MLIC.
MetLife, Inc., headquartered in New York, reported
total assets of about $563 billion and shareholders' equity of
approximately $35 billion as of September 30, 2007.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
For more information, visit our website at <A href="http://www.moodys.com/ins">www.moodys.com/ins</A>.
Financial Institutions Group
Moody's Investors Service
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service