AM Best Assigns Issue Credit Rating to United Fire Group, Inc.’s New Senior Unsecured Notes

Rhea-AI Summary

AM Best has assigned a Long-Term Issue Credit Rating of “bbb-” (Good) to United Fire Group's (UFG) $70 million senior unsecured notes, due May 31, 2039, with a 9% interest rate. The outlook is stable. The rating agency also withdrew the indicative rating on previously forthcoming debt following issuance confirmation. UFG's current ratings and those of its subsidiaries remain unchanged. Financial leverage and EBIT coverage are within acceptable ranges, with expectations for stable cash flow, capitalization, and operating results in the near term.

Positive

• AM Best assigned a 'bbb-' (Good) rating to UFG's $70 million senior unsecured notes.
• The rating outlook is stable.
• UFG’s financial leverage and EBIT coverage are within acceptable ranges.
• Cash flow, capitalization, and operating results are anticipated to be stable in the near term.
• Existing ratings of UFG and its insurance subsidiaries remain unchanged.

Negative

• The senior unsecured notes have a high-interest rate of 9%, which could increase financial burden.
• Potential risks associated with maintaining expected cash flow, capitalization, and operating results.

Insights

Financial Analyst

The issuance of $70 million in senior unsecured notes at a 9% interest rate indicates that United Fire Group, Inc. (UFG) is seeking to bolster its liquidity or fund strategic initiatives. The stable outlook assigned by AM Best suggests a certain level of confidence in UFG's ability to manage this new debt without compromising its creditworthiness.

The rating of 'bbb-' is considered investment grade but on the lower end of the spectrum, indicating moderate credit risk. This means UFG's financial health is perceived as solid for now, but investors should be cautious of potential shifts in the company’s financial stability if there are adverse market conditions or operational challenges. UFG's financial leverage and EBIT coverage appearing within acceptable ranges also support the company's current credit rating, reflecting disciplined financial management.

For retail investors, this news signifies that UFG has a predictable short-term outlook. However, the long-term implications hinge on how effectively the company deploys the raised capital. A 9% interest rate on long-term debt is relatively high, which may suggest either a higher perceived risk by investors or prevailing high-interest environments.

Market Research Analyst

The issuance of senior unsecured notes, particularly at a 9% interest rate, is significant for understanding UFG's market position and perception. Such a high yield could indicate that while UFG is a stable entity, there might be underlying uncertainties in its business model or external market conditions necessitating higher investor returns to attract capital.

Given AM Best's stable outlook, it can be presumed that UFG's operational metrics and market competitiveness are steady. However, this move also raises questions about future profitability and how the cost of servicing this debt might affect UFG's profit margins. Investors should monitor the company's future earnings reports and strategic announcements to see how the capital from this debt issuance is utilized and its impact on overall financial health.

This type of credit rating action is an essential indicator for market sentiment regarding UFG and highlights the need for investors to balance the relatively higher return potential with the associated risks.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has assigned a Long-Term Issue Credit Rating of “bbb-” (Good) to recently issued $70 million, 9% senior unsecured notes due May 31, 2039, of United Fire Group, Inc. (UFG) (Cedar Rapids, IA) [NASDAQ: UFCS]. The outlook assigned to this Credit Rating (rating) is stable.

Concurrently, AM Best has withdrawn the indicative rating on the previously forthcoming debt following confirmation that the note has been issued. The existing ratings of UFG and its insurance subsidiaries remain unchanged. UFG’s adjusted financial leverage and earnings before interest, and taxes coverage are within acceptable ranges for its current ratings.

AM Best notes that UFG manages its financial leverage to a modest level and that cash flow, capitalization and operating results are expected to be in line with expectations over the near term.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Gordon McLean

Senior Financial Analyst

+1 908 882 2109

gordon.mclean@ambest.com

Christopher Sharkey

Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Rosemarie Mirabella

Director

+1 908 882 2125

rosemarie.mirabella@ambest.com

Al Slavin

Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best

FAQ

What credit rating did AM Best assign to UFCS's new senior unsecured notes?

AM Best assigned a Long-Term Issue Credit Rating of 'bbb-' (Good).

How much are UFCS's new senior unsecured notes worth?

The new senior unsecured notes are valued at $70 million.

What is the interest rate and maturity date for UFCS's new senior unsecured notes?

The notes have a 9% interest rate and are due on May 31, 2039.

What is the outlook for the credit rating assigned to UFCS's new senior unsecured notes?

The outlook assigned to the credit rating is stable.

Did AM Best change the existing ratings of UFCS or its subsidiaries?

No, the existing ratings of UFCS and its insurance subsidiaries remain unchanged.

What happened to the indicative rating on the previously forthcoming debt of UFCS?

AM Best withdrew the indicative rating following the confirmation of the note issuance.

Are UFCS's financial leverage and EBIT coverage acceptable?

Yes, UFCS's financial leverage and EBIT coverage are within acceptable ranges.