Northbrook-based Allstate Corp., the largest publicly traded U.S. home and auto insurer, will retire about $3 billion in debt as Chief Executive Officer Thomas Wilson takes advantage of near record-low interest rates.
The insurer plans to repay or pre-fund $1.2 billion of debt maturing this year and next, and purchase through tender offers portions of $4.3 billion in outstanding debt at a premium, the company said today in a statement. The transactions will be funded by a combination of cash, issuance of preferred stock and debt.
Wilson, 55, is seeking to reduce his company's cost of capital as the Federal Reserve keeps borrowing costs low to help stimulate the U.S. economy. Allstate's $250 million of 20-year bonds maturing in June pay a 7.5 percent coupon. The company's $400 million of 5.35 percent notes due in 2033 yielded about 4 percent on May 20, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
"The net result will be more equity in the capital structure, lower capital cost and a longer maturity profile, with no meaningful impact on ongoing earnings," Wilson said in the statement. "These actions further enhance our strategic and capital flexibility and take advantage of the current unprecedented low cost of these capital sources."
The transactions will reduce second-quarter earnings, the insurer said in the statement, without providing a figure. The share buyback plan won't be affected, the company said.
Allstate said in a separate statement today that it had begun its tender for securities including the 2033 notes and $800 million of 5.55 percent bonds due in 2035. The offers expire on June 19. Credit Suisse Group AG and Goldman Sachs Group Inc. are acting as dealer managers for the offers.
The insurer climbed 0.8 percent to $49.45 at 11:19 a.m. in New York. The company has advanced 23 percent this year.