Standard & Poor’s Ratings Services has announced that it is keeping its ratings on Nationwide Financial Services Inc. (NFS), its subsidiaries, and related securities on CreditWatch with negative implications.
“The companies were placed on Watch negative on March 10, 2008, following the announcement of Nationwide Mutual Insurance Co.’s (NMIC) offer to acquire all outstanding shares of NFS common stock that it does not already own,” S&P explained. “The ‘A+’ counterparty credit and financial strength ratings on NMIC are one notch lower than the ‘AA-‘ financial strength and counterparty credit ratings on the core life insurance operating companies of NFS, including Nationwide Life Insurance Co., Nationwide Life & Annuity Insurance Co., Nationwide Life Insurance Co. of America, and Nationwide Life & Annuity Co. of America.
“The CreditWatch reflects the lower financial strength ratings of the acquirer, as well as uncertainty regarding the potential effect on capitalization of NFS and its subsidiaries, which has very strong capitalization that is supportive of the ratings,” S&P continued.
The rating agency indicated that it expects to resolve the CreditWatch when pricing of the deal is finalized and the impact on NFS and its subsidiaries’ capital becomes clearer. “We expect a call on the excess capital of NFS’ core insurance operating companies to help fund the all-cash acquisition, valued at about $2.4 billion at the time of the announcement,” noted credit analyst Matthew Carroll. “The ratings could be lowered one notch to equalize the financial strength and counterparty credit ratings on the life insurance operating companies with the ratings on the core property/casualty insurance operating companies.”
S&P also said: “If the ratings on the life insurance operating companies were lowered, the ratings on Nationwide Financial Services Inc. would be lowered one notch to maintain the standard three-notch differential between the holding company and the operating companies.”
Carroll added: “Alternatively, all of the current ratings could be affirmed if we believe the life companies will maintain very strong capitalization, as well as business and financial characteristics commensurate with the higher ratings.”
If the merger is completed, Nationwide Financial would become a wholly owned subsidiary of Nationwide Mutual and affiliates, thus making the capital and financial resources of Nationwide Financial more accessible to the group. S&P said it “believes that the strategy and business profile of NFS will remain broadly unchanged and augmented with additional efforts to develop cross-selling opportunities with Nationwide’s property/casualty customer base by tailoring product offerings sold through the property/casualty distribution system.”
Source: Standard & Poor’s – www.standardandpoors.com
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