(AFL) Aflac Prices $625 Million in Notes

Aflac Incorporated (AFL) has priced its yen-denominated (Samurai) bonds aggregating $625 million (¥50 billion) – $359 million (¥28.7 billion) of 1.47% three year notes, $197 million (¥15.8 billion) of 1.84% five year notes and $69million (¥5.5 billion) of three-month Japanese yen Libor plus 1.15% three year notes.

The company intends to utilize the proceeds to pay down debt and for general corporate purposes. Alfac sated that the issuance will help to repay ¥35 billion of Uridashi notes, maturing September 2011.

With the new issuance, the debt level of the company will increase and it will have to shell out more interest expenses. The company ended the first quarter with notes payables balance of $3.02 billion and incurred interest expense of $45 million. The new issue will also increase the debt capital ratio by 320 basis points.

Aflac’s first quarter earnings modestly surpassed the Zacks Consensus Estimate based on higher premium income, modest investment yields, favorable dollar/yen exchange rate and improvement in the U.S. operations, which also drove operating ROE. Healthy capital ratios, credit rating stability and modest improvement in fair value of investments were among the other positives.

The company expects operating earnings per share to grow at the lower end of 8–12% in 2011 (8% growth would be around $5.97 per share) excluding the impact of the yen. If the yen remains stronger and averages around 80–85 to a dollar for full-year 2011, Aflac anticipates reported earnings in the range $6.09–$6.34 per share.  Additionally, using the same rate assumption, operating earnings in the second quarter are expected to be within $1.51–$1.57 per share.

The Zacks Consensus Estimate for second-quarter 2011 is $1.53 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.21 per share and $6.43 per share.

We maintain our “Neutral” recommendation on Alfac Inc. The quantitative Zacks #3 Rank (short term Neutral rating) on the stock indicates no clear directional pressure on the shares over the near term.

Headquartered in Columbus, Georgia, Aflac Inc., through its subsidiary American Family Life Assurance Company of Columbus, provides supplemental health and life insurance. The company was incorporated in 1973 under the laws of the state of Georgia.

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