April 12, 2017 / 7:42 PM / in 7 months

Fitch Affirms Loews Corporation's IDR at 'A'; Outlook Revised to Negative

(The following statement was released by the rating agency) CHICAGO, April 12 (Fitch) Fitch Ratings has affirmed Loews Corporations' (Loews; NYSE: L) long-term Issuer Default Rating (IDR) and senior unsecured notes at 'A'. The Rating Outlook is revised to Negative from Stable. The Negative Outlook reflects Fitch's application of its 'Rating Investment Holding Companies' criteria, in particular the quality and diversification of dividend flows from investees. The Fitch-calculated blended income stream rating is 'BBB' based on each subsidiary's credit rating/opinion and dividend income contribution. Fitch has historically notched up the blended income stream one notch for dividend diversification. While Loews' robust liquidity, considerable asset liquidity, resilient dividend characteristics, favorable investment policy and record, and strong credit metrics provide an additional two notches uplift from the blended income stream. However, Fitch does not expect the dividend mix to change materially over the next couple of years without an improvement in the underlying cash flow streams of its energy subsidiaries or investments in new subsidiaries. While the recently announced acquisition of Consolidated Container Company (CCC) provides subsidiary diversification, material dividend contributions from CCC are not anticipated for at least a few years. Approximately $1.8 billion of debt is affected by today's rating action. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Loews' ratings reflect the holding company's track record of being a good steward of capital, robust coverage and leverage metrics, and strong financial flexibility and cash and investments position. These considerations are offset by a nearly complete reliance on a single subsidiary for ongoing dividend flows with limited prospects for diversification improvements and possibility that Loews' other subsidiaries may require material capital support for reinvestment and growth, albeit low near-term. HEIGHTENED DIVIDEND CONCENTRATION, INSURANCE RISKS EXPOSURE Loews has historically benefited from a fairly well diversified stream of dividends with some shorter term variation given the underlying economic condition of each subsidiary's business. However, dividend flows to Loews have and, at least for the next few years, will continue to be highly reliant on a single subsidiary. CNA Financial Corporation (NYSE: CNA; 'BBB+' IDR/ 'A' Insurer Financial Strength/Outlook Stable) is expected to provide over 90% of total 2017 dividend income. CNA is a primary source of dividend cash flows to Loews. CNA has paid a $2.00 per share special dividend in 2015, 2016, and 2017 in addition to $1.00 per share ordinary annual dividends. Fitch assumes that CNA's $2.00 per share special and $1.00 per share regular dividend payments will be retained over the near term. CNA's standalone ratings reflect its strong capitalization, stable earnings, and adequate reserve quality. CNA's ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations including long-term care (LTC). In particular, industry leaders in LTC have reported significant adverse reserve development. CNA unlocked its active life reserve in 2015 reducing the near-term risk of further large adverse loss experience. Diamond Offshore Drilling Inc. (NYSE: DO), during the first quarter of 2016, decided to discontinue its dividend as the oil price weakness continues to compound the effects of the offshore rig oversupply cycle. The dividend decision is expected to incrementally improve near-term liquidity to maintain financial flexibility. Fitch forecasts that Diamond will not pay any dividends over the medium term. In February 2014 Boardwalk Pipeline Partners, LP (NYSE: BWP; 'BBB-'/Outlook Stable) reduced its dividends by 81% (Loews' share dropped to $52 million in 2014, 2015, and 2016 from $297 million in 2013). The reduction was mainly due to U.S. shale natural gas supply-demand shifts that have impaired pipeline economics for two of its significant assets challenging contract renewals. While Boardwalk is pursuing projects to improve competitiveness and diversifying its offerings, capital spending over the next several years will limit dividend growth. Fitch projects that dividends will remain flat over the next few years. ROBUST COVERAGE, LEVERAGE, AND LTV METRICS Dividend and investment income, net of corporate-level expenses, provide robust coverage of interest costs and fixed charges of Loews' outstanding parent-level corporate obligations. Coverage was 10.0x and 11.3x for the years ended Dec. 31, 2015 and 2016, respectively. Fitch's base case forecasts coverage will remain strong for the rating category remaining in the 10x-10.5x range for the next few years. Leverage metrics are strong on a cash flow and loan-to-value (LTV) basis. Cash flow-based leverage was approximately 2.3x and 2.2x for the years ended Dec. 31, 2015 and 2016. Fitch's base case forecasts leverage metrics will remain strong at approximately 2.5x for the next few years. Fitch-calculated LTV, as of March 28, 2017, is estimated to be approximately 9% considering all Loews assets and about 13% considering only the value of Loews' publicly traded subsidiary ownership positions. Fitch's criteria also consider the stressed valuation of assets in order to consider their inherent volatility based on historical price movements. Fitch-calculated loan-to-stressed value, as of March 28, 2017, is estimated to be under 12% considering all Loews assets and over 17% considering only the value of Loews' publicly traded subsidiary ownership positions. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Loews include: --CNA dividends that remain flat year-over-year in 2017 following the $2 per share special dividend. Fitch assumes that CNA dividends remain level, which it does not expect will result in material pressure on capital levels and Fitch IFS ratings in the medium term; --Diamond dividends remain discontinued due to the challenged offshore drilling operating environment; --Boardwalk dividends remain flat at approximately $52 million; --Operating costs relatively consistent with historical levels; --Modest near-term subsidiary capital investments; --Loews equity activity remains balanced with management's long-term value-creation objective resulting in cash and investment balances maintained near current levels to moderate the effects of, and act opportunistically, during market downcycles. RATING SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to a positive rating action include: --Improvements in the underlying credit quality of investees and subsidiary dividend flow diversification; --Maintenance of a conservative financial and investment policy that retains robust interest coverage and leverage metrics, as well as liquidity. A revision of the Rating Outlook to Stable from Negative will be linked to an improvement in underlying credit quality of investees or a material increase in dividend diversification. Negative: Future developments that may, individually or collectively, lead to a negative rating action include: --Continued reliance on CNA for the majority of dividend flows with limited visibility for material contributions from other subsidiaries; --Weakening underlying credit quality of investees that could, among other things, require considerable Loews support resulting in reduced liquidity; --Material change in Loews' financial and investment policies; --Mid-cycle interest coverage below 4.5x and/or cash flow-based leverage metrics exceeding 2.5x for a sustained period; --Holding company-level acquisitions and/or shareholder-friendly actions inconsistent with the expected cash flow and leverage profile. A downgrade will be linked to a decline in underlying credit quality of investees or continued dividend concentration with limited visibility for diversification. STRONG FINANCIAL FLEXIBILITY, CASH & INVESTMENTS POSITION The holding company structure, with Loews' largest investments held in multiple majority-owned, publicly-listed companies, enhances its financial flexibility. This structure also protects Loews from having any recourse indebtedness of its investees. Additionally, there are no cross default provisions between subsidiaries or between the parent and subsidiaries. Loews had pro forma cash and investments of approximately $4.9 billion, as of Dec. 31, 2016, including the first quarter 2017 CNA regular and special dividend payments, BWP regular dividend payments, and cash used to fund the pending CCC transaction. Investment holdings are mainly comprised of cash equivalents and U.S. government bonds. Management indicated that it has and will continue to hold significant amounts of cash & investments to moderate the effects of and act opportunistically during market downcycles. LONG-DATED MATURITIES, COVENANT LITE TERMS Loews does not have any debt maturities until 2023. The holding company is not subject to any material financial covenants. Contact: Primary Analyst Dino Kritikos Senior Director +1-312-368-3150 Fitch Ratings, Inc. 70 W. Madison St. Chicago, IL 60602 Secondary Analyst Gerry Glombicki Director +1-312-606-2354 Committee Chairperson Michael Weaver Managing Director +1-312-368-3156 SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS Fitch has made no material adjustments that are not disclosed within the company's and its subsidiaries' public filings. Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Rating Investment Holding Companies (pub. 13 Jan 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below