American Financial delays convertible to next week on arbitration case ruling

By Ronda Fears

Nashville, May 21 - American Financial Group Inc. has delayed its convertible offering until next week in order to get more information together about a negative arbitration decision to present to potential investors, a company spokeswoman confirmed to Prospect News on Thursday.

"It's just been delayed," said American Financial spokeswoman Ann Watson.

"We'll probably look at pricing next week."

The $150 million proceeds of 30-year cash-to-zero convertibles had been set to price after the close Wednesday. The Rule 144A issue was talked to yield at 3.5% to 4.0% with an initial conversion premium of 47.5% to 52.5%.

Merrill Lynch & Co. and UBS Warburg are joint lead managers of the deal.

But before Wednesday's close, American Financial received a notice of a negative arbitration decision regarding a property fire and business interruption claim in which its principal property and casualty insurance subsidiary, Great American Insurance Co., was involved.

The company issued a press release stating that, based on preliminary information, it was looking at an after-tax loss, net of recorded reserves, of $20 million to $30 million, or 29c to 43c per share, as a result.

Watson said the company wanted time to gather as much information as possible about the situation to present to potential investors, thus the convertible offering was delayed.

Cincinnati-based American Financial plans to use proceeds from the convertible to repay outstanding debt under its existing bank line of credit and provide capital to support operations.

Under original plans, the discount notes would pay a cash coupon for five years, then becoming a 0% accreting bond. The issue would be non-callable for five years with puts in years 5, 10, 15, 20 and 25. There would be a contingent conversion trigger of 120% for life and a contingent payment trigger of 120%.

The issue was expected to be rated Baa3 by Moody's Investors Service and BBB by Standard & Poor's Corp.

American Financial shares closed up 20c, or 0.9%, to $22.40.

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