France-Based Insurer AXA#s Tier 2 Subordinated Notes Rated #BBB+#; Rating Subsequently Put On Watch Negative

Stocks and Financial Services Press Releases Friday March 23, 2018 16:36
MILAN--23 Mar--S&P Global Ratings

MILAN (S&P Global Ratings) March 23, 2018--S&P Global Ratings today assigned its 'BBB+' long-term issue rating to the tier 2 subordinated notes issued by France-based AXA (A/Watch Neg/A-1), the holding company of AXA Group (core operating entities rated AA-/Watch Neg/--). We subsequently put the issue rating on CreditWatch negative in line with the long-term issuer credit rating (ICR) on AXA.

We rate the notes two notches below the long-term ICR on AXA in accordance with our criteria for rating hybrid debt. We understand that the noteholders will be subordinate to AXA's senior creditors, and that AXA has the option of deferring interest on the notes. Furthermore, we note that interest deferral is mandatory if, under Solvency II, AXA's capital resources are insufficient to meet the solvency capital requirement or the minimum capital requirement; or if the relevant supervisory authority has determined that, in view of AXA's financial condition, AXA must take action in relation to payments under the notes.

AXA can call the notes in May 2029 and on each interest payment date thereafter. The coupon is fixed until the first call date, when it will convert to a floating coupon. The notes include a step-up of 100 basis points to the fixed-rate spread if the call option is not exercised.

Subject to certain conditions, AXA has the option to redeem the notes for tax or accounting reasons. It also has the option to exchange, redeem, or vary the terms of the notes for rating methodology or regulatory reasons, such as in the event that they prevent the notes from being eligible for regulatory capital purposes. AXA also has the right to repurchase the notes at any time in the open market or otherwise.

We expect to classify the notes as having intermediate equity content. We include securities of this category, up to a maximum of 25%, in our calculation of AXA's total adjusted capital (TAC), which forms the basis of our consolidated risk-based analysis of an insurance company's capital. Nevertheless, inclusion in TAC depends on the notes' eligibility for regulatory solvency treatment. The amount of hybrid capital we include cannot exceed the total eligible for regulatory capital.

We understand that AXA will use the notes' proceeds to finance its acquisition of commercial non-life insurer XL Group Ltd. We expect AXA group's financial leverage will increase moderately following the notes' issuance, but that the fixed-charge coverage ratio will remain well above 8x, in line with our current assessment of AXA's financial flexibility.


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