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22 Jun 2009
Approximately $5.3 billion of securities affected
New York, June 22, 2009 -- Moody's Investors Service today confirmed the debt ratings of Lincoln
National Corp.(LNC - NYSE: LNC) (senior debt at Baa2)
and the A2 insurance financial strength ratings of its operating subsidiaries.
This rating action concludes the review for possible downgrade that was
begun on April 15, 2009. In the same rating action,
Moody's assigned a Baa2 debt rating to LNC's $500 million
of recently-issued senior notes, as well as provisional ratings
to the company's new shelf registration, which replaces a
recently expired shelf. The outlook for LNC and its affiliates
Moody's said that the confirmation of LNC's ratings was driven by the
company's successful execution of its $2 billion capital
raising plan. New common equity of approximately $600 million,
senior debt of $500 million, and approximately $950
million of preferred stock, which will be issued pursuant to the
U.S. Treasury's Capital Purchase Program (CPP), have
addressed the rating agency's concerns related to the holding company's
liquidity and the adequacy of regulatory capital at the life insurance
companies. Moody's expects LNC to contribute approximately
$1 billion of the new capital raised to the life insurance companies,
and to apply the remaining proceeds towards repayment of short-term
financing and providing a liquidity cushion for near-to-medium
term holding company cash needs.
According to Moody's Vice President and Senior Credit Officer,
Ann Perry, "The negative outlook reflects our expectations
for continuing depressed earnings and further investment losses at LNC,
particularly under stress scenarios". The company's
business and earnings are heavily exposed to the equity markets,
given its large block of variable annuities with guarantees, as
well as its pension and asset management operations. In addition,
the negative outlook reflects the perceived stigma in the marketplace
with accepting TARP funds that could negatively affect the company's reputation
and franchise, thereby dampening new sales and policy retention.
Moody's said that LNC's outlook could return to stable if:
1) there is no deterioration in the company's franchise; 2)
NAIC RBC remains above 300%; 3) investment losses are less
than $1.5 billion pre-tax for 2009; and 4) financial
leverage remains below 30% and cashflow coverage and earnings coverage
are at least 4 times and 6 times, respectively.
The rating agency noted that a downgrade could occur if: 1) investment
losses exceed $1.5 billion pre-tax in 2009;
2) prospective organic capital generation is diminished due to materially
lower profits (e.g. > 25% decline); 3) NAIC
RBC falls below 300%; and 4) financial leverage rises above
30% and cashflow coverage and earnings coverage fall below 4 times
and 6 times, respectively.
The following ratings were confirmed with a negative outlook:
Lincoln National Corporation -- senior unsecured debt at
Baa2, junior subordinate debt at Ba1, short-term rating
for commercial paper at Prime-2;
Lincoln National Life Insurance Company -- insurance financial
strength rating at A2;
Lincoln Life & Annuity Company of NY -- insurance financial
strength rating at A2;
First Penn-Pacific Life Insurance Company -- insurance
financial strength rating at A2;
Lincoln National Capital VI -- backed preferred stock at
Lincoln National Capital VII, VIII, & IX --
preferred shelf at (P)Baa3;
General Repackaging ACES SPC 2006-1, General Repackaging
ACES SPC 2007-1 -- funding agreement-backed
senior secured debt rating at A2.
The following ratings were assigned with a negative outlook:
Lincoln National Corporation -- shelf drawdown -
senior unsecured debt at Baa2, provisional senior unsecured debt
at (P)Baa2, provisional subordinated debt at (P)Baa3; provisional
junior subordinate debt at (P)Baa3, provisional preferred stock
Lincoln National, through its businesses in wealth accumulation,
retirement income, and wealth protection, provides annuities,
life insurance, 401(k) and 403(b) plans, savings plans,
mutual funds, managed accounts, institutional investments,
and comprehensive financial planning and advisory services. On
March 31, 2009, the company reported total consolidated assets
of approximately $157 billion and consolidated shareholders' equity
of $7.3 billion. Lincoln National is headquartered
in Philadelphia, PA.
The last rating action on LNC was on April 15, 2009 when the ratings
of LNC and its affiliates were downgraded (senior debt to Baa2) and placed
under continuing review for possible downgrade.
The principal methodology used in rating LNC was Moody's Global Rating
Methodology for Life Insurers, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually pay senior policyholder claims and
For more information please visit Moody's website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Moody's confirms Lincoln National (Baa2 senior); rates shelf drawdown
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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