Fitch Rates Sun Life Financial Inc.'s C$1B Subordinated Debt 'BBB+'
KEY RATING DRIVERS
This new issue is rated equivalent to the ratings of SLF's existing subordinated unsecured debt. The net proceeds will be used for general corporate purposes of SLF, which may include investments in subsidiaries and repayment of indebtedness.
SLF's financial leverage ratio (FLR) was modest at 14.4% and total leverage at 23.5% as of June 30, 2016. Pro forma FLR and total leverage remain within Fitch's expectations for the rating category at approximately 17.7% and 26.5%, respectively.
SLF's ratings reflect its strong capitalization, improved earnings and fixed-charge coverage, solid asset quality and stable operating profile. The ratings also reflect the company's leading market position in Canada and continued growth in the U. S. and emerging Asian markets.
The key rating triggers that could result in an upgrade include:
--Consistent maintenance of fixed-charge coverage, excluding the net impact of market factors, of over 10x;
--Sustained improvement in underlying and reported profitability with a ROE maintained above 12%;
--Stable balance sheet fundamentals evidenced by an MCCSR ratio at or above 220% and financial leverage below 20%.
The key rating triggers that could result in a downgrade include:
--A decline in fixed-charge coverage, excluding the net impact of market factors, to below 6x;
--A sustained drop in the company's risk-adjusted capital position, including the MCCSR ratio falling below 200%;
--An increase in financial leverage to over 25% or an increase in total leverage to over 35%;
--A large acquisition that involves execution and integration risk or impacts the company's leverage and capitalization.
Fitch assigns the following rating:
--3.05% subordinated debentures due 2028 'BBB+'.
Fitch currently rates the SLF entities as follows:
Sun Life Financial, Inc.
--Long-term Issuer Default Rating (IDR) 'A';
--5.7% senior notes due 2019 'A-';
--4.57% senior notes due 2021 'A-';
--4.38% subordinated debentures due 2022 'BBB+';
--5.59% subordinated debentures due 2023 'BBB+';
--2.77% subordinated debentures due 2024 'BBB+';
--2.60% subordinated debentures due 2025 'BBB+';
--3.10% subordinated debentures due 2026 'BBB+';
--5.4% subordinated debentures due 2042 'BBB+';
--4.75% noncumulative preferred shares, series 1, 'BBB-';
--4.8% noncumulative preferred shares, series 2, 'BBB-';
--4.45% noncumulative preferred shares, series 3, 'BBB-';
--4.45% noncumulative preferred shares, series 4, 'BBB-';
--4.5% noncumulative preferred shares, series 5, 'BBB-';
--2.275% noncumulative preference shares series 8R, 'BBB-';
--2.075% (floating rate) noncumulative preference shares series 9QR, 'BBB-';
--3.9% noncumulative preference shares series 10R, 'BBB-';
--4.25% noncumulative preference shares series 12R 'BBB-'.
Sun Life Assurance Co. of Canada
--IFS ratings 'AA-';
--Long-Term IDR 'A+';
--6.30% subordinated notes due 2028 'A'.
Sun Life Capital Trust
--Sun Life ExchangEable Capital Securities (SLEECS), 7.093% series B, 'A-';
--Sun Life ExchangEable Capital Securities (SLEECS), 5.863% Series 2009-1, 'A-'.
The Rating Outlook is Stable.