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Aflac Swaps Senior Notes

Zacks Equity Research

Aflac Inc. (AFL) recently announced that it has entered into agreements with three separate parties to swap the previously issued senior notes worth $750 million into yen currency.

The first set of five-year $400 million senior notes which contained a fixed coupon rate of 2.65% was swapped for a coupon rate of 1.22% at yen 30.9 billion.

Now, the second set of ten-year $350 million senior notes, with a fixed coupon rate of 4.0% was converted into a value of yen 27.0 billion with a coupon rate of 2.07%.

Management’s intent was to gain a higher debt rating utilizing a lower Japanese effective interest rate from this transaction. The proceeds from the sale of these notes are also to be used to clear off the company’s 1.87% Samurai notes which currently stand due in June 2012 valuing at $347 million.

Previously, in its fourth quarter earnings, the company appreciated its operating earnings per share by 6% using gains from yen/dollar exchange rate. Aflac’s constant desire to ameliorate its capital position in the market is a favorable sign for its investors as it is calculated to bolster confidence in their minds.

The company seems to be in quite a formidable position at present to battle its ominous competitors such as AMERISAFE, Inc. (AMSF), Employers Holdings Inc. (EIG) and Seabright Holdings, Inc. (SBX).

We currently expect Aflac’s first quarter of fiscal 2012 to yield an EPS of $1.67/share and $6.67/share for the full year 2012.

We maintain our Neutral recommendation on the stock. Our recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold.

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