QBE Insurance has tapped the US debt market for $US600 million to help buy back convertible securities next month, within days of being downgraded by credit ratings agency Moody's.
Highlighting the strength of international debt markets, QBE priced the five-year bonds in the US 144a market at a fixed rate of 2.4 per cent per annum, or 175 basis points over Treasurys, above initial guidance of 180 basis points over.
The bonds tightened by 10 to 15 basis points in the secondary market, according to Deutsche Bank credit strategists. Barclays and Morgan Stanley ran the deal.
“The proceeds of the issue will be used to assist in funding the purchase of our May 2010 senior convertible securities and for general corporate purposes,'' QBE said today.
The deal came amid a busy night for debt markets, with Goldman Sachs and Microsoft also tapping US debt markets and BHP Billiton this week pricing a 750 million euro, 20-year deal.
The insurer added the securities would be treated as debt under Australian accounting standards and would rank equally with all relevant present and future unsecured and unsubordinated debt.
Prior to the deal, QBE had about $4.9 billion in borrowings, mostly from debt markets.
It comes after Moody's this week cut QBE by one notch to Baa1, from A3, citing the group's weakened earnings, internal capital generation and debt service coverage measures and sustained elevated operational leverage.
Moody's added its outlook on the rating was negative, warning recent moves to enhance performance will “take time to implement and that the path towards restoring capital strength and deleveraging will be gradual''.
Standard & Poor's in November revised its outlook on QBE to negative, from stable, while affirming its A rating.
QBE issued a profit warning in November following the impact of Hurricane Sandy, the worst drought in the US in 50 years, and ongoing low interest rates resulting in the group posting a sharply lower than expected 8 per cent lift in full-year profit to $761 million.