Infinity Property & Casualty Corp. has tapped the market for a $200 million term loan, taking the opportunity to secure low interest rates, explained Roger Smith, Infinity's senior v.p. and cfo. "Timing is everything," he said, noting that the loan market is "hot for paper." Initially, Birmingham, Ala.-based Infinity had planned to complete a $180 million note offering in February, but the company ultimately withdrew the deal due to unfavorable market conditions. Smith said Infinity decided to tap the loan market this time around due to the reasonable pricing--the term loan carries a spread of 21/2% over LIBOR--as well as the high probability of getting the deal completed.
The proceeds from the transaction will be used in part to repay a $55 million promissory note with the American Financial Group (AFG). AFG spun off Infinity last February in an initial public offering, but still owns about 38% of the stock. Smith explained that the 10-year promissory note is priced at 81/2%. The credit will also be used to finance Infinity's growth in the insurance business and for general corporate purposes. Infinity also has the ability to secure a revolver for up to $20 million.
Lehman Brothers and Bear Stearns lead the new credit. Bear Stearns was one of the participating banks on the company's initial public offering and Lehman has expertise in Infinity's business as well as a relationship with its chairman, Carl Lindner, noted Smith. The majority of lenders in the credit are institutional investors, he added. Infinity provides personal automobile insurance, but has a particular focus on nonstandard auto insurance or insurance to higher-risk individuals.