Fitch Ratings has affirmed
The Rating Outlook remains Stable.
In accordance with Fitch's Investment Holding Companies Rating Criteria, the most important driver in assessing Loews' IDR is the quality of its income stream. Loews' rating is supported by the Fitch-calculated Blended Income Stream Rating (BBB+), and additional uplift from other factors specified in the holding companies' criteria. The Stable Outlook also reflects the rating of majority-owned subsidiary
Key Rating Drivers
Steady CNA Dividends: The majority of dividends paid to parent Loews come from subsidiary
Fitch currently rates CNA's LT IDR 'A-' with a Stable Outlook, reflecting the company's favorable financial performance, capital, and debt servicing capabilities and financial flexibility. Offsetting these positives is CNA's exposure to the runoff of the long-term care (LTC) business and a modestly elevated expense ratio.
Strong Dividend Stream from Boardwalk:
High Revenue Concentration: While Loews' subsidiaries operate in diverse industries, Fitch views Loews' income stream as having low diversity. CNA generated over 90% of dividend income and 80% of total income for Loews since 2015, which marked the beginning of the downturn in energy and dividends from energy-related investments. The BWP buy-in in 2018 modestly reduced parent reliance on CNA dividends but has remained flat, and Fitch does not expect
Robust Credit Metrics: Loews' credit metrics are consistent with the 'A' rating category and support a two-notch uplift to the Blended Income Stream Rating. Fitch uses a hybrid of cash flow-based and loan-to-value metrics in its assessment of Loews' financial structure. As of YE 2022, the Fitch-calculated interest coverage was 11.1x, gross debt to dividend income was 2.4x, while loan to value was also strong at 14.3%. However, the amount of headroom in the Blended Income Stream Rating itself is constrained.
Conservative Financial Strategy: Management's conservative capital policy also supports the rating. Loews' capital structure contains modest levels of long-dated holdco debt and has had negative net debt over the past decade. The debt lacks material financial covenants, and has no cross defaults to subsidiary-level debt. The company's large, highly liquid investment portfolio further anchors Loews' financial flexibility.
Adequate Revenue Stability: Consolidated dividend payments have shown reasonable stability, despite changes in their underlying composition, highlighting the benefit of a noncorrelated portfolio of subsidiaries. In 2023, Fitch anticipates solid CNA dividends in line with historical levels. Fitch considers the revenues from the investment portfolio as a durable income stream despite some volatility in the investment portfolio, and includes them in the assessment of Loews' credit profile.
Derivation Summary
In accordance with Fitch's Investment Holding Companies Rating Criteria, the most important driver in assessing Loews' IDR is the quality of its income stream. The Fitch-calculated Blended Income Stream Rating for Loews was 'BBB+' based on the weighted projected contributions from
Other Loews subsidiaries were excluded from the Blended Income Stream Calculation based on the lack of recent dividends to the parent or Fitch's expectation that such dividends would not be recurring. This includes
Fitch considers Loews to have low dividend diversification despite owning four largely uncorrelated businesses, because its investment in CNA generates most of its income. Fitch applies no rating upgrade from diversification to Loews' rating.
However, Loews' rating receives a positive two-notch upgrade from supplemental rating factors, including good financial structure, with a loan-to-value ratio well below 25%; high dividend to gross interest coverage and low gross debt to dividend metrics leverage; robust ability to cover its maturities given its negative net debt position; good dividend stability; and a clear commitment to maintain a conservative investment and financial policy. The two-notch upgrade is toward the high end of the maximum three-notch uplift Fitch may apply under its criteria. Both cash flow-based and value-based leverage metrics were used in the rating derivation for Loews.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
CNA dividends to parent of
BWP dividends of
No dividends paid to parent from
No additional acquisitions over the forecast period;
Excess cash mostly funnelled to share buybacks.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Improvements in the underlying credit quality of investees resulting in an upgrade to Loews' Fitch-calculated Blended Income Stream Rating;
Material improvement in dividend diversification resulting in an additional upgrade above the Blended Income Stream Rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in the underlying credit quality of investees resulting in a downgrade to Loews' Fitch-calculated Blended Income Stream Rating;
Material decline in one or more supplemental rating factors leading to a reduction in the current upgrade in notching;
Change in investment or financial policy at the holding company level resulting in acquisitions and/or shareholder-friendly actions inconsistent with the current ratings profile;
Increased volatility in dividends received at the parent, or increased restrictions on ability to upstream dividends to the parent.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity Position: Loews' liquidity is anchored by its large, highly liquid investment portfolio. Management's strategy is to hold significant amounts of cash and low risk equivalents to moderate the effect of a down cycle in the markets, both for defensive reasons and to allow the company to act opportunistically if attractive M&A prospects emerge. Loews' investment portfolio has averaged just around
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Not applicable as there is no navigator
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
A
Affirmed
A
senior unsecured
LT
A
Affirmed
A
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