CNA Financial Corporation CNA announced the pricing of $500 million aggregate principal amount of senior unsecured notes. The notes carry an interest rate of 2.050% and are scheduled to mature on Aug 15, 2030.

The company plans to deploy the net proceeds to repurchase, redeem, repay or otherwise retire the $400 million outstanding aggregate principal balance of its 5.750% senior notes due Aug 15, 2021. The remaining, if any, may be used for general corporate purposes and further investments in short-term interest-bearing securities.

The company displayed prudence by issuing senior notes amid a low interest rate environment to procure funds and enhance financial flexibility without affecting liquidity. As of Jun 30, 2020 CNA Financial’s cash balance more than doubled to $586 million from 2019 end level.  

By capitalizing on the low interest rate environment, the company is also attempting to reduce its interest burden, thus facilitating margin expansion. Also, the company’s operational strength should enable it to service debt uninterruptedly, thereby maintaining the stock’s creditworthiness.

However, with the new issuance, interest expense will increase. But we still believe that the company is in a strong position to clear debts, banking on operational efficiencies.

As of Jun 30, 2020, total debt of the company was about $1.1 billion, up 3.9% from 2019 end. Though the debt-to-equity ratio of 23 deteriorated 110 basis points, it was better than the industry average of 27.9. However, the latest offering will increase the debt-to-equity ratio by 430 basis points.

Though its times interest earned ratio, indicating if the company will be able to meet current obligations in the near future without any difficulties, contracted 330 basis points year over year to 5.4 in the second quarter of 2020, it is still better than the industry average of 4.4.

CNA Financial maintains a conservative capital structure for the low leverage ratio and a well-balanced debt maturity schedule. The company stated that its capital adequacy and credit metrics remained above the target levels at second-quarter end, supporting credit ratings.

Shares of this Zacks Rank #3 (Hold) property and casualty insurer have lost 23.4% year to date compared with the industry’s decline of 7.6%.

Recently, MGIC Investment Corporation MTG issued $650 million in aggregate principal amount of 5.250% senior notes due 2028 to capitalize on the low interest rate environment.

Stocks to Consider

Some better-ranked stocks from the same space are The Allstate Corporation ALL and RLI Corp RLI, both sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Allstate delivered earnings surprise of 74.47% in the last reported quarter.

RLI Corp delivered earnings surprise of 71.11% in the last reported quarter.

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