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AM Best has assigned a Long-Term Issue Credit Rating of "a-" to the newly issued senior unsecured notes of Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL]. The $400 million, 1.125% notes, due March 15, 2026, were issued as senior sustainability notes. The outlook assigned to the Credit Rating (rating) is stable. The existing ratings of Aflac and its subsidiaries are unchanged.
AM Best expects the proceeds from the $400 million offering to be used to fund Aflac’s sustainability initiatives, a first for the company based on its developing an environmental, social and governance investment philosophy. Aflac’s intent is to use at least the equivalent of the net proceeds from this issue exclusively for existing, future or financing of assets that meet its sustainability bond framework. These are assets, businesses or projects that meet their board-approved criteria within that framework. These may include investments in renewable energy and efficiency projects, green buildings, clean transportation and sustainable water management investments. The social aspect may include investments in programs promoting economic mobility and access opportunity to foster productive employment. Aflac’s internal mechanism to manage this effort will be conducted by its Sustainability Bond Council, which is composed of members of its asset management subsidiary, Treasury team and other senior management. The company has the discretion to use any unallocated portion of the net proceeds in cash and cash equivalents or other liquid marketable instruments.
While AM Best expects the debt issuance to have a modest impact on Aflac’s financial leverage, with adjusted financial leverage of approximately 20% and a continued strong interest coverage ratio, these metrics remain well-within AM Best’s guidelines for the organization’s current ratings. AM Best notes that Aflac has maintained ample liquidity, with its cash and cash equivalents at approximately $5.0 billion at year-end 2020 and its financial flexibility has remained nimble throughout the COVID-19 pandemic.
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