CHICAGO, Nov 03, 2010 (BUSINESS WIRE) -- Fitch Ratings has placed Unitrin, Inc.'s (Unitrin) debt and Issuer Default Rating (IDR) on Rating Watch Positive following both Unitrin's recent announcement that it is contemplating issuing new public debt in the fourth quarter of 2010, as well as additional analysis completed by Fitch of Unitrin following recent meetings with company management. See the complete list of ratings at the end of this release.
Fitch expects to upgrade Unitrin's IDR and existing holding company senior debt ratings by one notch to 'BBB' and 'BBB-', respectively, following a successful completion (within reasonable terms) by the company of long-term debt issuance. Accordingly, Fitch also expects to rate Unitrin's new debt issue at 'BBB-' upon issuance. Also upon issuance, Fitch expects to affirm Unitrin's subsidiary Insurer Financial Strength (IFS) ratings at 'A-', and assign a Stable Outlook to all of Unitrin's applicable ratings. Fitch's current Rating Outlook for Unitrin's IFS ratings is Negative.
Fitch believes the successful completion of a long-term debt issuance, for which a portion of the proceeds would be used to pay off the company's bank revolver in full, would materially improve the company's financial flexibility and overall holding company profile. Concerns with respect to financial flexibility were a key driver of both Fitch's previous Negative Rating Outlook on Unitrin's holding company ratings (and current IFS Outlook), as well as the wider than customary notching between Unitrin's insurance company and holding company ratings. A successful debt issuance would greatly mitigate those concerns.
The Rating Watch Positive is also influenced by additional analysis completed by Fitch related to Fireside Bank, Unitrin's once troubled auto finance business, which the company previously announced it would exit. Idiosyncratic risks related to Fireside Bank have also been a key driver of the wider than customary notching between Unitrin's insurance company and holding company ratings.
Fitch has performed various stress scenarios related to the bank run-off, and while there is still risk related to the performance of Fireside Bank's loan portfolio, based on the agency's updated analysis, Fitch believes the bank will be self-funding and will not weaken the balance sheet of the parent company. This relieves some of the concern that has resulted in wider holding company notching. Providing additional comfort for the holding company is Fireside's $240 million of cash and investments.
Fitch notes that Fireside Bank's capitalization remains strong with a Tier 1 Capital to Total Average Asset ratio of 31% compared with 15.6% on March 31, 2009 when the bank was placed into runoff. Operating performance continues to show improvement with an operating profit of $14.7 million at Sept. 30, 2010 compared with a $1.5 million operating loss for the prior year period.
Should Unitrin be unsuccessful in issuing debt at reasonable terms, Fitch will review ratings at that time, but would likely affirm the ratings at their current levels with a Negative Outlook.
Fitch has placed the following on Rating Watch Positive:
Unitrin
--IDR 'BBB-';
--$360 million senior notes 'BB+'.
Fitch currently rates the following with a Negative Outlook:
Trinity Universal Insurance Co.
United Insurance Co. of America
Union National Life Insurance Co.
Reliable Life Insurance Co.
--IFS rating 'A-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Aug. 16, 2010);
--'Non-Life Insurance Rating Methodology' (March 24, 2010).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
Non-Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
SOURCE: Fitch Ratings
Fitch Ratings Brian Bertsch, +1-212-908-0549 Media Relations, New York brian.bertsch@fitchratings.com or Primary Analyst: Dafina M. Dunmore, CFA, +1-312-368-3136 Director Fitch, Inc. 70 W. Madison Chicago, IL 60602 or Secondary Analyst: Martha Butler, CFA, +1-312-368-3191 Senior Director or Committee Chairperson: Mark Rouck, CPA, CFA, +1-312-368-2085 Senior Director
Copyright Business Wire 2010
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