OREANDA-NEWS. March 30, 2015. Fitch Ratings has assigned AG Insurance's (IFS A+/IDR A/Stable) issue of dated EUR400m subordinated notes a final rating of 'BBB+ '.

The assignment of the final rating follows the completion of the bond issue and receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on 26 March 2015.

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

The issue matures in 2047 and is first callable in 2027. The securities pay a 3.5% fixed annual coupon for 12 years until the first call date. Unless the bonds are called at that time, the interest rate will convert into a reset rate including a step-up of 100bps. 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 terms and conditions, the new bond qualifies for Tier 2 capital recognition under Solvency 2. Under Fitch's methodology, this instrument is 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 increases marginally 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 changes to the IDR of AG Insurance is likely to result in a corresponding change to the rating of the subordinated debt.