Lincoln digs deep to repay $500M debt

Shares of Lincoln National Corp. fell today as the insurer prepared to pay down $500 million in debt. After opening at $6.35 a share, the Radnor, Pa.-based carrier’s stock fell to as low as $6.16 in intraday trading as the company geared up to pay the debt maturity in full today. Lincoln used internal cash resources at the holding company level to foot the bill, as opposed to finding extra money through private or government avenues. The debt repayment comes at a tough time for the carrier as it searches for cash amid a liquidity squeeze, according to a statement from Lincoln. A downgrade from Moody’s Investors Service of New York on March 19 cited Lincoln’s reduced financial flexibility, weakened profitability and more expected investment losses along with lower statutory capitalization as the primary causes that its senior debt ratings were cut to Baa1, from A3. Lincoln Life Insurance Co., the company’s primary operating company, has also been downgraded, to A1, from Aa3. A volley of downgrades followed Moody’s action from equity analysts at Citigroup Inc. of New York and Credit Suisse Group of Zurich, Switzerland, last week. Citigroup cut its rating on the insurer’s shares to “sell,” from “buy,” and Credit Suisse downgraded the stock to “neutral,” from “outperform.” “We suspect that Lincoln’s first option for liquidity management will be to borrow from its subsidiaries or pay dividends to the holding companies,” Credit Suisse analyst Thomas Gallagher wrote in a research report last week. Another $375 million in outstanding commercial paper will come due for Lincoln next month, which it has also said that it will cover with internal cash and another issuance of commercial paper without government guarantees. The company has been scouring for other financing options, including applying to the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program and the Capital Purchase Program, which is part of the Department of the Treasury’s Trouble Asset Relief Program. However, Lincoln pulled its application back from the FDIC’s program, and no help has been made available to insurers through TARP yet. Lincoln spokeswoman Lauren Sammerson confirmed that the company is using internal cash to put forth the payments but declined to provide additional comment on the amount of cash that the company has available.