Recently, CNO Financial Group Inc. (CNO) amended its senior secured credit facility to reduce the interest rate. The company opted for the amendment at the beginning of May, 2013.
The primary alterations incorporated in the senior secured credit facility include amended pricing and mandatory prepayment modifications.
Under the pricing amendment, CNO Financial re-priced the $225 million four-year term loan to LIBOR plus 2.25% with a LIBOR floor of 75 basis points from LIBOR plus 3.25% with a LIBOR floor of 100 basis points, representing an overall decline of 125 basis points. The re-pricing also included an overall 125 basis points decline in the $406.2 million six-year term loan to LIBOR plus 2.75% with a LIBOR floor of 100 basis points from LIBOR plus 3.75% with a LIBOR floor of 125 basis points.
Revision of the mandatory prepayments resulted from any Restricted Payments, including share buybacks and dividends. The prepayment modifications include three principal changes. The first change pertains to a 100% prepayment for every $1 of Restricted Payments, provided that the debt-to-capital ratio is greater than 25% (changed from the previous limit of 22.5%). Second, a 33.3% prepayment is to be made for every $1 of Restricted Payments, provided that the debt-to-capital ratio is greater than equal to 20% but less than or equal to 25% (changed from a minimum and maximum limit of 17.5% and 22.5% respectively). Finally, the amendment provides for a no prepayment option if the debt-to-capital ratio is less than or equal to 20%, changed from a prior limit of 17.5%.
Apart from these changes, other necessary modifications were also made to provide additional financial flexibility.
Interest expense of CNO Financial declined 5.2% year over year to $27.3 million in the first quarter of 2013. The transaction is expected to reduce the annual cash interest expense further by approximately $8 million and provide greater flexibility in managing the excess capital. The annual interest expense recognized in earnings is expected to be reduced by $6 million, inclusive of the amortization and transaction related costs. Moreover, CNO Financial is expected to incur a pretax charge of nearly $2 million in the second quarter of 2013.
The principal balance of CNO Financial’s Senior Secured credit facility is $631 million; there was no alteration in the current amortization schedule.
As a result of the company’s strong credit fundamentals and operating performance, credit rating agency Standard & Poor’s upgraded the Issuer Credit Ratings (:ICR) and senior secured debt ratings of CNO financial to “BB-“from “B+” in the beginning of the month. All the aforesaid amendments are consistent with the ratings upgrade and CNO Financial’s solid performance.
CNO Financial currently carries a Zacks Rank #3 (Hold). Among others in the industry, Assured Guaranty Limited (AGO), Eastern Insurance Holdings Limited (EIHI) and Kemper Corporation (KMPR) carry a favorable Zacks Rank #1 (Strong Buy) and are worth noting.
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