ALL Allstate Corporation

The Progressive Corporation (PGR) has offered $500 million of 3.75% senior notes due 2021. Progressive is offering the senior notes at 99.892% of face value.

Progressive intends to use the proceeds for general corporate purposes.

A.M. Best Co. has assigned a debt rating of “a” with a stable outlook to the notes. Another credit rating agency, Fitch Ratings, also intends to assign "A" to the notes.

Progressive ended the second quarter of 2011 with a debt balance of $1.96 billion, lower than $2.18 billion at the end of the second quarter of 2010, reflecting a reduction of $0.2 billion over a one-year period. The debt-to-capital ratio was 23.6% at second-quarter 2011-end, lower than 25.7% at the end of second-quarter 2010. The issuance of $500 million of debt will increase the debt-to-capital ratio by 430 basis points.

The company incurred interest expenses of $31.5 million in the second quarter of 2010, a decline of 10% from $35.1 million in the prior-year period. With the new debt issuance, the company will have to dish out an additional $18.7 million annually as interest.

The company reported second quarter earnings per share of 38 cents, lagging the Zacks Consensus Estimate by a penny. Results, however, compared favorably with the year-ago earnings of 32 cents.

The Zacks Consensus Estimate for third-quarter 2011 is 34 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are respectively, $1.54 per share and $1.64 per share.

We currently maintain a “Neutral” recommendation on Progressive. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Mayfield Village, Ohio, The Progressive Corporation is one of the largest auto insurers in the country. It competes with Allstate Corporation (ALL).

 
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