The Long and Short
A guarantee that lifts ratings
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
A rare structure in Nationwide bonds gives holders a senior operating claim. The notes are issued out of NATMUT’s life insurance intermediate holding company—Nationwide Financial Services—but with a guarantee by the core operating company, Nationwide Mutual Insurance Co., on a senior basis, which is extremely unusual in the insurance sector. The structure results in mid-single-A ratings from both Moody’s and S&P. By comparison, senior notes issued by the parent holding company are rated Baa1/BBB+.
The NATMUT 3.9 ’49s offer some of the most attractive spread in the long-end of the curve whether you are looking at either the life or property & casualty peer groups (composite single-A ratings or better). The bonds are also senior in the capital structure relative to surplus notes – which are issued out of the operating company on a subordinated basis (with A3/A- ratings) and qualify as hybrid capital. The bonds are only subordinated to policyholders in the priority of claims (Exhibit 3).
Though primarily Property & Casualty, NATMUT is a multi-line operator with both significant P&C and Life operations. Since the bonds are an intermediate holding company obligation, the NATMUT 3.9 ’49s are classified as being part of the Life Insurance peer group according to Bloomberg/Barclays for index purposes, while the parent company obligations and surplus notes are classified as P&C.
Exhibit 1. NATMUT ’39s vs A/AA Senior Holding Company Life Insurance peers
Source: Amherst Pierpont, Bloomberg/TRACE BVAL Indications
Exhibit 2. NATMUT ’39s vs A/AA Senior Holding Company P&C Insurance peers
Source: Amherst Pierpont, Bloomberg/TRACE BVAL Indications
NATMUT 3.9% 11/30/49 @ +110-105/30YR; G+109-104; 2.93-2.88%; $118.31-119.37
Issuer: Nationwide Financial Services Inc.
Amount outstanding: $1 billion
144a private placement
Exhibit 3. Insurance Company (NATMUT) debt capital structure
Source: Amherst Pierpont, Bloomberg
Nationwide (NATMUT) is top 10 insurance operator in the United States. Operations are predominantly in traditional P&C business lines, with additional business lines in Life insurance via Nationwide Financial Services. Those businesses include corporate-owned life insurance, variable annuities, fixed index annuities, mutual funds and retirement services. NATMUT is well capitalized with a solid liquidity profile, both reflected in current ratings.
Dan Bruzzo, CFA
1 (646) 776-7749
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