AXA at risk of downgrade post XL acquisition

Fitch Ratings has 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.

The rating actions follow the announcement that AXA plans to acquire XL Group for €12.4 billion, which will be paid entirely in cash. AXA expects to finance the cash consideration via €3.5 billion available cash resources, €6 billion from the IPO of AXA's US operations (Life & Savings and Alliance Bernstein) planned in the second quarter of 2018, and related pre-IPO transactions and €3 billion via issuance of subordinated debt. The target completion period is second half of 2018, subject to regulatory approvals and approval by XL shareholders.

Fitch Ratings has placed AXA entities' Insurer Financial Strength (IFS) ratings and AXA SA's Long-Term Issuer Default Rating (IDR) on Rating Watch Negative (RWN).

The Rating Watch Negative reflects Fitch's view that there are execution risks associated with the planned IPO of AXA's US life operations that could a have a negative impact on AXA's credit profile in relation to the planned acquisition of XL. If the IPO is not concluded successfully, AXA may, at least in part, draw on a €9 billion credit line the group has lined up as a contingent funding facility to fund the acquisition of XL. This scenario would increase AXA's financial leverage and weaken the group's fixed-charge coverage beyond the tolerance of AXA's ratings. Had the transaction not been partly financed by the successful completion of the IPO, Fitch would have affirmed the IFS rating with a Stable Outlook.

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