OREANDA-NEWS. S&P Global Ratings today assigned its 'BBB' long-term issue rating to the $850 million Tier 2 undated subordinated notes issued by France-based AXA (A-/Positive/A-2), the holding company of AXA Group (core operating entities rated A+/Positive/--).

We rate the notes two notches below the long-term counterparty credit rating on the issuer, AXA. The first notch reflects our understanding that the noteholders will be subordinated to AXA's senior creditors, and the second notch is based on the insurer's option to defer interest on the notes. The issuer's option to defer the coupon payments is restricted if, during the previous six-month period, a dividend on any class of shares has been declared or paid. Furthermore, we note that interest deferral is mandatory if AXA breaches its solvency requirement.

AXA can exercise a call of the notes five and a half years after issuance, in March 2022 and subsequently at each six monthly interest payment date thereafter. The coupon is fixed at 4.5%, with no step-up.

Subject to certain conditions, AXA has the option to redeem for tax or accounting reasons, or to exchange, redeem, or vary the terms of the notes as a result of a change in rating agency methodology or for regulatory reasons, for example, in the event they prevent the notes from being eligible for regulatory capital purposes. AXA also has the right to purchase the notes at any time in the open market or otherwise.

We expect to classify the notes as having intermediate equity content under our hybrid capital criteria. We include securities of this category, up to a maximum of 25%, in our calculation of total adjusted capital (TAC), which forms the basis of our consolidated risk-based capital analysis of insurance companies. Our inclusion in TAC nevertheless depends on the eligibility of the notes for regulatory solvency treatment. The amount of hybrid capital we include cannot exceed the total eligible for regulatory capital.

We understand that AXA is expecting to use the notes' proceeds for refinancing purposes. We expect financial leverage to continue to decline toward about 20% and fixed-charge coverage to remain above 8x, a level consistent with AXA's strong financial flexibility.