Financial Services Company Athene Holding Inc to Sell Preferred Issue

Athene Holding (NYSE:ATH) has announced a new fixed rate non-cumulative preferred issue.

Of course no details are known yet except for the typical terms–non-cumulative (being a financial company), quarterly payments and qualified for preferential tax treatment.

I expect this issue to be low investment grade.

The company sold a fixed-to-floating rate issue in June with an initial fixed coupon of 6.35% which can be seen here.

Preliminary information is here.

27 thoughts on “Financial Services Company Athene Holding Inc to Sell Preferred Issue”

  1. Hi Tim,
    You said “typical terms–non-cumulative (being a financial company)”.

    I understand that banks are constrained about cumulative issues (tier 1 capital rules), but I don’t think Athene is regulated as a bank. it looks to me like a bermuda insurance company, so I don’t think it is constrained from issuing cumulative issues. There are a lot smarter/more knowledgeable people on this board, so maybe someone will correct me if I am mistaken.

    1. Private—I believe they are constrained as they are a systemically important non bank financial institution with over $100 billion in assets.

      Note that being domiciled in Bermuda is not really the question–where are they doing business? There are EU rules which govern capital requirements, additionally the Basel Accords govern the capital as well and the Fed has implemented the Basel III capital rules. Bunches of information can be found here–

      https://www.federalreserve.gov/supervisionreg/basel/basel-default.htm

      1. I did some research and Athene doesn’t appear to be on the lists of systemically important institutions I could find ( I am way out of my depth here and could be completely wrong).

        In the insurance area, I found:
        Aegon N.V.
        Allianz SE
        American International Group, Inc.
        Aviva plc
        Axa S.A.
        MetLife, Inc.
        Ping An Insurance (Group) Company of China, Ltd.
        Prudential Financial, Inc.
        Prudential plc

        I also found reports of companies (like Hartford) selling assets to Athene to avoid being classed as SIFIs, but nothing about Athene being classed as one.

        The reason this “non-cumulative” caught my eye is that I recall other Bermuda insurers issuing non-cumulative preferreds and then not paying (Maiden Holdings jumps to mind). If Athene isn’t precluded from issuing cumulative shares by the SI rules, then it would make me wonder what they are up to.

        1. Private–you could right and it is beyond my pay grade as well-but anyone can sell a non cumulative as long as there are folks to buy the shares. I would caution that many, many insurance companies are domiciled in Bermuda–i.e. Argo, Renaissance RE, Axis Capital, Arch Capital–and on and on so I would not use that to make investment decisions.

          1. Yes, Tim, and also their subsidiaries that actually operate in US are under US regs. I remember a house building company (cant remember name) had a 9.75% non cumulative issue. It got redeemed a year or two ago. I owned it off and on its last few years. It got suspended during financial crisis time for awhile. I remember that issue had a senior debt covenant that forced suspension until certain capital levels were met. ….For newbees that is a hint on importance of “cap stack” when troubles hit the fan that I keep referring to.
            RNR-C is an old insurance preferred outstanding that is cumulative. But it was issued pre crisis. Its subsequent sisters were issued non cumulative. PIHPP is a cumulative insurer preferred. But I remember it being filed that way because they were able to because it is “new emerging company”. I dont trust that tiny P&C insurer at all personally.
            Like you guys, I am no expert on details of how insurers can issue preferreds outside of “systematically important”. The bottom line is, it really is what it is and you have to accept it if you go there.
            Maiden suspended but they are not financially sound and had all sorts of reserves problems to deal with. Amtrust who many harp on (including me) delisted their non cum preferreds and yet still dutifully pay them though.

            1. Grid–yes there isn’t a single factor that disqualifies anything from me–non-cumulative–cumulative–I just want to know what i am going to receive–I buy stuff all the time without even diving in below the surface on many issues. Reading on Basel Accords and all that stuff is way above my pay grade and in the end youy still can’t get a black and white answer. On the other hand if you are new to this stuff I guess you want to dig deep in the fundamentals which is just fine and may have some ‘rules’ that you and I don’t even consider. I know on SA there are some commenters who pound the table over never buy above $25–hell I do it all the time.

              1. Tim, lol…Understanding insurance financials….That is a good laugh. Truly understanding their entire financial structure…….. And mimicking some rudimentary profit/loss from a quarter and cash flow is not understanding an insurers financials. This is beyond the ability of 99% of us. And half of that 1% that thinks they do, really dont either I would guess.

                1. Grid, I previously worked in planning department of a major U.S. insurance company – you know them. Reserve-setting (against future claims) has an enormous impact on profitiability, rate-setting, and potentially solvency. Shocking is how much guess work goes into this. It’s as much artform as science and can easily be manipulated to serve one’s desired outcome – at least for a while. This is the achilles of all carriers. If you want to evaluate one – start with the reserves – it’s 90% of the equation.

              2. Tim, Not that they’re the end-all, I supplement my lack of clairvoyance with heavy reliance on the rating agencies. I “mostly” prefer to buy and hold, but even then I try to avoid the cliff-hanging BBB- issues. The recent downgrade to F-B is a perfect example of why. It’s recovering, though that issue lost almost 2 points on the new sub-IG rating by Moody’s.

                Watching that, I learned something I did not know: Apparently pension funds and the like can hold if IG and one rating, IG for two ratings or IG for 2 out of three ratings – but not for one IG and one not IG. In F-B’s case, the sell-off was swift.

                1. Alpha, that has been a concern for quit a while now. The preponderance of investment grade issues lately have been lower BBB types. Not the A’s. And if economy went into recession many of these IG issues could drop into BB range.
                  This would cause a two fold problem. Forced selling as you mentioned above, and then the subsequent flood of “junk debt” into the market which could cause stress in that segment then.

          2. Thanks Tim,

            I agree that any company can issue a non-cumulative. I own a bunch of bank non-cumulatives, and a couple from non-banks. In all cases, it comes down to how much you trust management.

            My point was that in the intro to your original post, you said “typical terms–non-cumulative (being a financial company)”, which made it sound like the non-cumulative feature of the new issue from Athene was “mandatory” like issues from banks . It isn’t.

            I just didn’t want anyone to jump into this stock assuming (based on your intro) that the Athene couldn’t (practically) issue a cumulative stock like a bank issue .

            Sorry to have created so much traffic over it.

            1. Private–no problem at all. It is always good to revisit these topics–after 15 years of this one many times writes without thinking too deep.

  2. Investors interested in the new ATH issue should compare it to the “A” issue before purchasing.

    “A” is a LIBOR based floater with a SY of 5.94% at today’s closing price (ignore it) and a YTC of 5.40% (that’s the number that matters). The “A” is callable only in 2029; the new issue is a standard 5-year call, so 2024.

    Traders will probably prefer the “A”; buy-and-hold the new issue. But it’s pretty must at an indifference point. Which is to say the new issue is properly priced.

    Bonds are rated BBB+; preferred the standard 2 notches lower at BBB-. It’s a Bermudian insurance company but at the lower end of the spectrum. It’s not a hurricane play.

    1. Might be a foreign company purchase fee from brokers…..and I suspect this offering is needed to pay for a purchase they are making from GE’s finance unit.

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