S&P rates American Financial Group debentures

Standard & Poor's said it assigned its BBB senior unsecured debt rating to American Financial Group Inc.'s proposed issue of $100 million 30-year senior debentures, which will be drawn down from the company's existing shelf registration statement.

The company intends to use the net proceeds from this offering to redeem the outstanding 9.125% TOPrS that were scheduled to mature in October 2026. Although the transaction will moderately increase debt leverage once the TOPrS are redeemed, S&P said it views this tradeoff favorably given the company's reduced cost of funds and modest net reduction in fixed charges.

"The rating on AFG is based on its good business position in its specialty property/casualty and life/annuity niche markets, continued strengthening of operating results, and strong capital adequacy," said S&P credit analyst Steven Ader.

"Partially offsetting these factors is AFG's poor historical operating performance, exacerbated by a multitude of material charges and reserve development in recent years. In addition, AFG's earnings diversification decreased following the IPO of its personal lines business in February 2003."

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