American life insurance company Lincoln repays $700 million of debt
08 Apr 2009
With American financial institutions failing left, right and centre, the news of one of them actually managing to pay off debt comes as a pleasant surprise. On Tuesday, Lincoln National Corp, a large US life insurer trying to stave off a liquidity shortfall, said it is paying off $700 million of debt as part of a plan that will leave it with sufficient cash for the "foreseeable future."
The company said it recently paid $500 million of debt, and plans to pay off $200 million of commercial paper maturing over the next several weeks. It also said it will consider asset sales, reinsurance transactions, and debt securitisations to bolster its "already well-capitalised" insurance businesses." Lincoln lowered its dividend 95 per cent in February.
Shares of Lincoln were up 24 cents, or 3.8 per cent, at $6.61 in late morning trading, after earlier rising as high as $7.07. The shares remain far below their record high of $74.72 set in May 2007.
Lincoln CEO Dennis Glass said the company's short-term debt would be reduced to about $450 million, with funds for the payments coming from dividends from the Lincoln National Life Insurance Co. and the company's reinsurance subsidiary.
''We continue to prudently and actively manage our liquidity and capital positions,'' Glass said. ''We are reducing leverage and significantly improving our financial flexibility at the holding company.''
In late March, Lincoln said it withdrew its application to participate in a Federal Deposit Insurance Corp debt guarantee programme because it believed it would not qualify. Lincoln, whose request for $3 billion in US bailout funds is pending after more than four months, was downgraded to ''sell'' by Citigroup Inc. on 2 April on concern the company won't get the capital it needs from the government or private investors.
The company secured capital relief by agreeing to a reinsurance deal with Goldman Sachs Group Inc. in March. The accord transfers risk to a subsidiary of the bank and will reduce Lincoln's yearly net income by $20 million, the insurer has said.
Lincoln posted a $506 million loss in the fourth quarter and has had more than $4 billion in write-downs and unrealized losses tied to the US mortgage market in the past two years.