Empire Life Issued 6.73% Sub-Debt in May

Assiduous Readers with extremely good memories will remember that Empire Life was rated by DBRS in May, at which time I speculated that a new issue might be coming out.

Well, it did, but it was a private placement and I missed it. Their press release states:

The Empire Life Insurance Company (Empire Life) and E-L Financial Corporation Limited (E-L) (TSX:ELF)(TSX:ELF.PR.F)(TSX:ELF.PR.G) announced today that Empire Life offered in Canada, by way of private placement to accredited investors, $200 million principal amount of subordinated unsecured 6.73% fixed/floating debentures (Debentures) due May 20, 2019. The offering is expected to close May 20, 2009.

The Debentures will mature on May 20, 2019 and will bear interest at a fixed annual rate of 6.73% for the first five years, payable in equal semi-annual payments, and a variable annual rate equal to the three-month CDOR plus 5.75% for the last five years, payable quarterly. The Debentures have been provisionally rated “A (low)” with a stable trend by DBRS Limited.

The proceeds will be used for regulatory capital and general corporate purposes, and to repay a $125 million subordinated debenture issued to E-L (subject to approval by the Superintendent of Financial Institutions). The proceeds from the Debentures are expected to qualify as Tier 2B capital for regulatory purposes.

The issue has been offered on an agency basis by a syndicate of dealers co-led by RBC Dominion Securities Inc. and Scotia Capital Inc. Other syndicate members include: National Bank Financial Inc., TD Securities Inc., BMO Nesbitt Burns Inc., CIBC World Markets Inc. and HSBC Securities (Canada) Inc.

Impact of the debentures issue on financial strength

On a pro forma basis, the Company estimates that its Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio would increase from 201% to 219% (as at March 31, 2009) following the issue of these Debentures and repayment of the E-L debenture.

Remember that as preferred shareholders in the holding company (ELF.PR.G, ELF.PR.F) we don’t care all that much about the MCCSR of the operating subsidiaries.

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