Fitch Ratings has assigned a 'BBB+' rating to
The ratings previously assigned to MFC and its insurance operating subsidiaries are unaffected by today's rating action.
Key Rating Drivers
The rating assigned to MFC's new subordinated notes are equivalent to the outstanding ratings on the company's existing subordinated debt. The new notes are rated two notches below MFC's 'A' Long-Term Insurer Default Rating (IDR), which reflects Fitch's assumption of 'poor' recovery prospects in the event of default, given the level of subordination and zero additional notches for 'minimal' non-performance risk. Proceeds from the sale of the debentures will be used for general corporate purposes, including investment in the company's subsidiaries and potential future refinancing requirements.
Fitch affirmed MFC's ratings and its insurance operating subsidiaries and revised the Rating Outlook to Positive from Stable on
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Reduced exposure associated with legacy liabilities and alternative asset classes;
Maintenance of very strong capitalization metrics;
Sustainable core earnings measures evidenced by ROE in excess of 12%;
Stability in reported net income;
Reductions in financial leverage to consistently below 20%;
Improved core-earnings FCC consistently in excess of 10x.
Factors that could lead to a return to a Stable Outlook
Failure to continue meeting the majority of the above upgrade sensitivities, which could be driven by losses or adverse performance in legacy blocks including LTC and ULSG, pressuring core financial performance ratios.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Sustained deterioration in capitalization metrics;
Core earnings deterioration evidenced by ROE measures below 8% and ROA below 65bps;
Core-earnings fixed-charge coverage (FCC) below 6x, with financial leverage and total leverage above 25% and 35%, respectively;
A significant increase in exposure to alternative assets or an increase in the risky asset ratio to above 140%.
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores
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