Moody’s gives American Financial debt Baa2 (hyb)

Moody's Investors Service said it assigned a Baa2 (hyb) rating to $150 million of subordinated debentures due 2054 being issued by American Financial Group's (senior debt at Baa1, negative).

The outlook is negative.

The transaction is a drawdown from American Financial’s multi-purpose U.S. shelf registration.

Net proceeds are expected to be used for general corporate purposes, including share repurchases and/or the redemption of all or a portion of the $132 million outstanding amount of 7% senior notes due September 2050 (redeemable beginning Sept. 30, 2015).

Moody’s said the ratings reflect the company's expertise and niche market position in a diverse set of P&C commercial specialty segments with good geographic and line of business diversification as well as its niche position in the qualified and non-qualified tax-deferred annuity business. The group maintains a good financial profile in terms of profitability, capital adequacy and holding company liquidity.

These strengths are tempered by relatively high operating leverage at the P&C operation, exposure to long-tail casualty lines which increases pricing and reserving risk, integration risk associated with its acquisition of Summit workers' compensation business, managing growth in the bank fixed annuity market and significant holdings of non-agency RMBS securities, although these have been performing well, the agency said.

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