OREANDA-NEWS. Fitch Ratings has assigned AG Insurance's (IFS 'A+'/IDR 'A'/Stable) proposed issue of dated EUR-denominated subordinated notes an expected rating of 'BBB+(EXP)'. The final rating is contingent on the receipt of final documents conforming to information already received.

The proceeds of the issue will be used to redeem existing debt and for general corporate purposes.

The proposed issue will fall due in 2047 and will first be callable in 2027. The securities will pay a fixed annual coupon for 12 years until the initial call date. Unless the bonds are called at that time, the interest rate will convert into a reset rate including a step-up. The notes are subordinated to senior creditors, rank pari passu with existing dated subordinated securities issued by AG Insurance and are deferrable at the option of the issuer, subject to a 'dividend pusher' clause with a look-back period of six months.

KEY RATING DRIVERS
The rating is in line with Fitch's standard notching practices. Fitch deems the issue's loss-absorbing features "Material" and baseline recovery "Below Average", meaning that the rating is two notches lower than the IDR of AG Insurance.

The issuance is in line with the Ageas group's strategy to optimise its capital structure and maximise hybrid debt capacity at the individual operating entity level.

According to the expected terms and conditions, the new bond is expected to qualify for Tier 2 capital recognition under Solvency 2. Under Fitch's methodology, this instrument will be treated as 100% capital in Fitch's risk-based capital assessment and 100% debt in Fitch's financial leverage calculation.

As the debt issuance refinances debt of a smaller amount, AG Insurance's financial leverage ratio is expected to marginally increase to around 33% from 32% based on a pro-forma calculation using 2014 data. This high financial leverage is outside Fitch's median guidelines for the 'A' IFS category but Fitch does not expect it to increase any further.

Fitch views the transaction positively from the perspective of financial flexibility, as it further demonstrates AG Insurance's ability to access debt capital markets.

RATING SENSITIVITIES
Any change to the IDR of AG Insurance is likely to result in a corresponding change to the rating of the subordinated debt.