UnumProvident Down 20% As Moody's Mulls Ratings Downgrade
03/07/2003
DOW JONES NEWSWIRES
By Nick Baker NEW YORK -- UnumProvident Corp. (UNM) shares fell to their lowest level in at least 10 years Monday after Moody's Investors Service said it may downgrade the credit ratings of the nation's largest disability insurer. The agency said UnumProvident's current ratings are imperiled by the firm's continuing discussions with the Securities and Exchange Commission regarding how to account for the unrealized losses in its junk bond portfolio. Those losses totaled about $870 million as of Dec. 31. Furthermore, Moody's asserted that UnumProvident must raise "substantial" new equity to meet government-mandated financial-strength rules, also known as statutory capital -- especially because of the "substantial amount of intercompany loans from the operating life insurance companies to the holding company." These loans, which Moody's said harm the quality of statutory capital, rose to nearly $700 million, or 20% of statutory capital, at the end of 2002. Proceeds from potential equity offerings would allow UnumProvident to reduce the intercompany loans, Moody's said. In a note to clients, Credit Suisse First Boston stock analyst Caitlin Long called the level of intercompany loans during the fourth quarter "unusually high." It jumped by about $250 million from the third-quarter tally. Long had thought UnumProvident would have to raise $750 million in equity by offering common stock and convertible securities. "Now we think the number could be more than $1 billion -- and we're not sure that can be done in this market," she wrote in a research note earlier. UnumProvident officials weren't immediately available for comment. UnumProvident shares recently slipped 27% to $9.23. Earlier, the stock hit $9.16, below the previous 52-week high of $12.37 set on Friday. More than 2.6 million shares hjave changed hands compared with average daily volume of about 1.2 million In December, Moody's cut UnumProvident's senior-debt rating to Baa3, its lowest investment-grade rating - meaning a further downgrade would put UnumProvident's rating at junk. That cut, Long of CSFB noted, forced UnumProvident to finance the maturity of its commercial paper in December "by lending cash from its life-insurance subsidiaries to its parent company." Long downgraded UnumProvident to underperform from neutral on Feb. 6. UnumProvident raised the $250 million needed through reverse repurchase agreements within its life-insurance portfolios, which "raises questions about the company's liquidity flexibility," Long wrote. She wasn't available to say whether she owns UnumProvident shares. CSFB has helped the insurer with investment banking. On Feb. 5, UnumProvident said the SEC is reviewing how the company records and reports declines in the market value of bonds in its investment portfolio. Two days later, the other major debt-rating agency, Standard & Poor's Ratings Services, put the firm's credit ratings on review for a possible downgrade, noting that the SEC review had delayed UnumProvident's capital-raising plans. UnumProvident shares have fallen further, reaching a new daily low of $8.51.
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