Validus Prices Debt Offering; S&P Rates Issue ‘BBB-‘; Affirms Ratings

January 22, 2010

Validus Holdings announced that it has priced a registered offering of $250 million aggregate principal amount of 8.875 percent Senior Notes due 2040. They are to be sold to the public at a “price of 98.71 percent of principal.” The Offering is expected to close on or about January 26, 2010, subject to customary closing conditions.

Validus said it intends to use the net proceeds from this offering for “general corporate purposes, which may include the repurchase of its outstanding capital stock, dividends to its shareholders and/or potential acquisitions.”

Standard & Poor’s Ratings Services has assigned its ‘BBB-‘ rating to the debt issue, and has also affirmed its ‘BBB-‘ counterparty credit rating on Validus with a positive outlook.

S&P noted that as Validus had “completed its amalgamation with IPC Holdings in September 2009,” it does not “expect that it will use pending debt proceeds to finance another acquisition in the short term. Validus’ pro forma leverage and coverage metrics are supportive of the rating.”

S&P also pointed out that Validus had a “strong operating performance” in the first nine months of 2009 with pretax income of $728.3 million compared with $21.1 million for the same period in 2008. “The surge in earnings primarily reflected $287 million of negative goodwill associated with the IPC amalgamation, a benign catastrophe season, the inclusion of IPC’s results, and $110 million of unrealized investment gains.

“The ratings on Validus are based on the group’s strong and expanding competitive position; strong capitalization; strong risk controls around exposure management, underwriting, and modeling; and very strong operating performance since inception.

“Partially offsetting these strengths are the potential integration risk related to the IPC transaction, the possibility of significant earnings volatility because of its short-tail focus and catastrophe exposure (the latter of which we believe has increased significantly following the IPC deal), and the group’s adequate strategic risk-management practices.”

Credit analyst Tracy Dolin added: “We expect that Validus’ operating performance will remain strong in years when catastrophe activity is normal. Results will be volatile because of the company’s property catastrophe focus, which will increase as a result of the IPC acquisition, but the diversification from the Talbot book of business partially mitigates this volatility.”

Source: Validus Holdings – and Standard & Poor’s –

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