Integon Senior Debt On FitchAlert Positive, GMAC Senior Debt & CP Affirmed - Fitch Financial Wire -
25 June 1997
Integon Senior Debt On FitchAlert Positive, GMAC Senior Debt & CP Affirmed - Fitch Financial Wire -
NEW YORK, June 25 -- Fitch has placed Integon Corp.'s
(Integon) 'BB+' $75 million 9.5% senior notes, due 2001, and $75 million 8%
senior notes, due 1999, on FitchAlert with positive implications. A FitchAlert
positive indicates the rating could be raised or affirmed in the near term.
The action follows the company's announcement of a definitive agreement
providing for Integon's merger with a subsidiary of General Motors Acceptance
Corp. (GMAC). Integon common stockholders are to receive $26 per share,
which includes conversion of Integon's $3.875 convertible preferred stock
(totaling approximately $550 million). Also, $100 million in trust preferred
securities will remain outstanding and GMAC will assume Integon's debt, for
total consideration of $800 million. The transaction is expected to close
early in the fourth quarter of 1997.
GMAC's outstanding senior debt is affirmed at 'A' and commercial paper
rating is affirmed at 'F-1'. Approximately $33.5 billion of GMAC's senior
long-term debt and $25.3 billion of commercial paper is currently outstanding.
Fitch raised GMAC's and parent General Motors Corp.'s (GM) senior debt ratings
to 'A' from 'A-' on June 18, 1997, reflecting GM's substantial progress in
restoring its profitability, based largely on lowering domestic structural
costs and overseas volume growth. GM has also restored its financial position
and improved flexibility -- expensive debt and preferred issues have been
reduced, pension plans are economically funded and downturn preparedness
includes a $14.6 billion cash cushion at March 31, 1997.
The pending merger significantly enhances Integon's credit profile. With
$33.5 billion of senior long-term debt and $25.3 billion of commercial paper
outstanding, the assumption of Integon's $150 million senior debt should have
minimal impact upon GMAC's leverage and debt servicing capacity. Following the
merger, Integon will continue to be run as a stand-alone operation.
Integon's non-standard auto business, marketed through 13,000 independent
agencies, and GMAC's direct response preferred and standard personal lines
insurance business should complement each other, due to their dissimilar
distribution systems and customer bases. In the near term, this aspect should
stem potential agency defections from Integon. In the longer term, management
cites plans for leveraging Integon's expertise to create new opportunities
inside and out of GMAC. Such strategies will expectedly be executed so as to
not upset the relationship balance with Integon's independent agency network.
GM still faces challenges in improving domestic profitability to its
target 5.0% net income return on sales. While the company continues to launch
products more aligned with market trends, it only recently made incremental
progress in reversing its U.S. market share erosion. Further, surgically-
targeted labor actions have impeded progress in raising productivity and taken
their toll in lost production and profits.
During 1996, GMAC had good penetration, expanded its retail leasing
activities significantly and increased its returns during a competitive
environment. Losses have increased in the retail portfolio, from the company
having bought deeper in the credit spectrum during 1994 and 1995. Since then,
management tightened underwriting standards and took other actions to counter
the rising losses. Prudent balance sheet management and strong results at the
parent have resulted in improved access to the capital markets at favorable
funding costs.
SOURCE Fitch Investors Service