14 May 2018Insurance

AXA US IPO secures funds for XL acquisition

The initial public offering (IPO) of AXA’s US unit was priced below the indicative price range but the proceeds, combined with a bond issue will still substantially secure the funding for AXA's planned acquisition of XL Group, according to Moody’s.

French insurer AXA is in the process of acquiring XL Group for $15.3 billion (€12.4 billion) in cash.

On May 10, 2018, AXA said the sale via an IPO of 24.5 percent of its US life and asset management business (AXA Equitable Holdings) would be priced at $20 per share, corresponding to total proceeds of $2.745 billion. The price fell short of the $24-27 previously announced indicative price range.

Moody’s noted that the IPO, which AXA intends as a first step towards a full sale of the US business, is positive for the group's economic capitalization and risk profile.

A full sale of the US business, in combination with the XL acquisition, will accelerate AXA's ambition of becoming more reliant on non-life underwriting profit and less on financial market-related earnings, Moody’s said. The XL acquisition will also help AXA counterbalance reduced earnings diversification following the sale of its US business, the agency noted.

To help finance the XL deal, AXA had issued $750 million of bonds mandatorily exchangeable for a number of shares of common stock of its US subsidiary.

With the IPO and exchangeable bond proceeds (€3 billion) in addition to cash at hand (c.€3.5 billion), subordinated debt raised (€2 billion out of c.€3 billion initially targeted) and pre-IPO reorganization transaction proceeds ($3.2 billion including internal loan repayments), AXA has now secured over €11 billion of the €12.4 billion required to fund the XL acquisition, Moody’s said.

Furthermore, the IPO and exchangeable bond proceeds could increase by up to around $0.5 billion if underwriters exercise the option to purchase additional amounts, and AXA could issue up to another €1 billion in subordinated debt. Therefore, the execution risk around the XL financing, and any need for AXA to tap into its back up bridge financing, has largely been removed, Moody’s noted.

In March, Fitch Ratings had threatened to downgrade AXA following the plan to acquire XL Group due to financing risks related to the planned IPO of AXA’s US subsidiary.

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