OREANDA-NEWS. Fitch Ratings has downgraded Loews Corporation's (Loews; NYSE: L) Issuer Default Rating (IDR) and senior unsecured notes to 'A' from 'A+'. The Rating Outlook remains Stable. Approximately \$1.7 billion of debt is affected by today's rating action. A full list of rating actions follows at the end of this release.


The downgrade reflects Fitch's application of the 'Rating Investment Holding Companies' criteria, in particular the quality and diversification of dividend flows from investees. Fitch believes that Loews exhibits an increasing reliance on a single subsidiary, CNA Financial Corporation ('BBB+'/Outlook Stable; NYSE: CNA), for most of dividend flows from Loews' subsidiaries and limited prospects for near-term improvement in dividend flows from its energy subsidiaries - Diamond Offshore Drilling, Inc. (NYSE: DO) and Boardwalk Pipeline Partners, LP ('BBB-'/Outlook Stable). Fitch recognizes, however, that Loews has considerable cash and investments to moderate the effects of and act opportunistically during the market/industry downcycle to improve their cash flow, diversification, and subsidiary credit prospects over the medium term.

KEY RATING DRIVERS

Loews' ratings reflect the holding company's track record of being a good steward of capital, robust coverage and leverage metrics, and strong financial flexibility and cash and investments position. These considerations are offset by the increasing reliance, over the near term, on a single subsidiary for ongoing dividend flows with limited prospects for diversification improvements and possibility that Loews' other subsidiaries may require material capital support for reinvestment and growth.

HEIGHTENED DIVIDEND CONCENTRATION, EXPOSURE TO INSURANCE CAPITAL AND REGULATORY RISKS
Loews has historically benefited from a fairly well diversified stream of dividends with some shorter term variation given the underlying economic condition of each subsidiary's business. However, dividend flows to Loews have and, at least for the near term, will continue to be reliant on a single subsidiary (CNA is expected to provide nearly 90% of total 2015 dividend income).

CNA's standalone ratings reflect its strong capitalization, stable earnings, and adequate reserve quality. Loews has demonstrated its support of CNA over the years through various actions that have improved CNA's capitalization. CNA's ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations including long-term care (LTC). In particular, Fitch notes that industry leaders in LTC have recently taken significant adverse reserve development; however, CNA with its most recent announcement, in the fourth quarter of 2014 (4Q'14), reduced its active life reserve margin by \$250 million to \$100 million. CNA typically does a thorough review of LTC claims reserves in the third quarter and its LTC active life reserves in the fourth quarter. Fitch assumes that CNA dividends maintain capital levels that are not expected to put material pressure on Fitch's Insurer Financial Strength (IFS) ratings.

Diamond, in 1Q'15, decided to suspend its special dividend as the oil price downturn has compounded the effects of the offshore rig oversupply cycle. The suspension is intended to improve near-term liquidity to meet capital requirements (e.g., 2015-2016 newbuild payments) and maintain financial flexibility. Dividends from Diamond are anticipated by Fitch to remain at the regular rate (Loews' share is estimated to drop to \$36 million in 2015 vs. \$245 million in 2014) through at least 2016.

Boardwalk, in February 2014, reduced its dividends by 81% (Loews' share dropped to \$52 million in 2014 from \$297 million in 2013) mainly due to U.S. shale natural gas supply-demand shifts that have impaired pipeline economics for two of its significant assets challenging contract renewals. While Boardwalk is pursuing projects to improve competitiveness and diversifying its offerings, capital spending over the next three to four years will limit dividend growth.

ROBUST INTEREST COVERAGE, LEVERAGE METRICS
Dividend and investment income, net of corporate-level expenses, provide robust coverage of interest costs and fixed charges of Loews' outstanding parent-level corporate obligations. Coverage was 13.8x and 10.7x for the years ended Dec. 31, 2013 and 2014, respectively. Fitch's base case forecasts coverage will remain strong for the rating category at 11.3x for 2015.

Leverage metrics are strong on a cash flow and loan-to-value basis. Cash flow-based leverage was approximately 2.2x for the years ended Dec. 31, 2013 and 2014. Fitch's base case forecasts leverage will remain strong at 2.1x in 2015. Fitch-calculated loan-to-value, as of April 1, 2015, is estimated to be over 8% considering all Loews assets and about 12% considering only the value of Loews' publicly traded subsidiary ownership positions.

STRONG FINANCIAL FLEXIBILITY, CASH & INVESTMENTS POSITION
The holding company structure, with Loews' largest investments held in multiple majority-owned, publicly-listed companies, enhances its financial flexibility. This structure also protects Loews from having any recourse indebtedness of its investees with the exception of limited Loews Hotel mortgage guarantees. Additionally, there are no cross default provisions between subsidiaries or between the parent and subsidiaries.

Loews' sole near-term debt maturity is its \$400 million, 5.3% senior notes due 2016. All other maturities occur in 2023 and beyond. The holding company is not subject to any material financial covenants.

Loews had cash and investments of \$5.1 billion, as of Dec. 31, 2014. Investment holdings are mainly comprised of cash equivalents and U.S. government bonds. Management indicated that it has and will continue to hold significant amounts of cash & investments to moderate the effects of and act opportunistically during market downcycles.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--CNA dividends are forecast to increase substantially in 2015 following the \$2 per share special dividend. Fitch assumes that CNA dividends maintain capital levels that are not expected to put material pressure on Fitch's IFS ratings;
--Diamond and Boardwalk dividends are projected to remain relatively flat at \$36 million and \$58 million, respectively, following cuts/suspensions;
--Operating costs are estimated to remain relatively consistent with historical levels;
--Subsidiary capital investments are forecast to increase in 2015 to support Boardwalk and Loews Hotel projects, but anticipated to return to historical levels thereafter;
--Loews equity activity is assumed to remain balanced with management's long-term value creation objective resulting in cash and investment balances maintained at roughly \$5 billion to moderate the effects of and act opportunistically during market downcycles.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Improvements in the underlying credit quality of investees and subsidiary dividend flow diversification;
--Maintenance of a conservative financial and investment policy that retains robust interest coverage and leverage metrics, as well as liquidity.

Future positive rating actions are unlikely without a material improvement in underlying credit quality and dividend diversification.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Continued reliance on CNA for the majority of dividend flows with limited visibility for improvements in Diamond and Boardwalk's dividend contributions;
--Weakening underlying credit quality of investees that could, among other things, require considerable Loews support resulting in reduced liquidity;
--Mid-cycle interest coverage below 6.0x and/or cash flow-based leverage metrics exceeding 2.5x for a sustained period;
--Holding company-level acquisitions and/or shareholder-friendly actions inconsistent with the expected cash flow and leverage profile.

Future additional negative rating actions will be closely linked to Loews' ability to improve underlying credit quality and dividend diversification and reinvest in its subsidiaries, if necessary, with the maintenance of strong coverage and leverage metrics and liquidity position.

Fitch has downgraded Loews' ratings as follows:

--Long-term IDR to 'A' from 'A+';
--Senior unsecured notes to 'A' from 'A+'.

The Rating Outlook remains Stable.