Arch Capital Group Ltd. ACGL recently declared the public offering of two series of senior notes – aggregating $950 million – of its wholly owned subsidiary, Arch Capital Finance LLC. The offering consists of 4.011% $500 million senior notes and 50.31% $450 million senior notes that are scheduled to mature in 2026 and 2046, respectively.
The company plans to deploy the net proceeds from the offering to fund part of the cash consideration for the buyout of United Guaranty Corporation and AIG United Guaranty Insurance (Asia) Limited from the parent company, American International Group, Inc. AIG. The proceeds will help Arch Capital to pay for related costs and expenses and for expected growth in its mortgage and other select businesses.
The property and casualty (P&C) insurer displays its prudence by issuing senior notes amid a low interest rate environment to procure funds. By capitalizing on the low interest rate environment, the company is consciously making efforts to reduce its interest burden, thereby facilitating margin expansion. Also, a sustained operational strength will enable the company to service debt uninterruptedly, thereby maintaining its creditworthiness.
As of Sep 30, 2016, the debt of the company was $791.4 million, which inched up 0.02% from $791.3 million at the end of 2015. The debt-to-equity ratio at Sep 30, 2016 was 26%, up 40 basis points from 25.6% at the end 2015. However, the latest offering will increase the debt-to-capital ratio by another 1160 basis points.
Shares of Arch Capital have outperformed the Zacks-categorized P&C industry, year to date. Sustained solid top line growth, as well as robust underwriting results, contributed to the outperformance. This price performance is also backed by positive estimate revisions. The company has witnessed upward revisions in its 2016 and 2017 estimates over the last 60 days.
Currently, Arch Capital sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Stocks to Consider
Investors interested in other stocks from the same space can also consider Alleghany Corporation Y, NMI Holdings, Inc. NMIH. Both these stocks have the same Zacks Rank as Arch Capital.
Alleghany Corporation deals with P&C reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
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