NU Online News Service, June 1, 2:54 p.m.EDT

Paris, France-based AXA says it will sell its Canadian propertyand casualty and life and savings insurance operations toToronto-based Intact Financial Corp. for CAD 2.6 billion ($2.7billion at the current exchange rate).

Henri de Castries, chairman and CEO of AXA, says in a statement,“The sale of our Canadian operations comes after several similartransactions and represents a further step in our strategy ofredeploying capital toward geographies with higher long-term growthprospects.”

Moody’s Investors Service says it is placing Intact’s Aa3insurance financial strength rating under review for possibledowngrade due to the acquisition’s funding structure.

Alan Murray, senior credit officer at Moody's, says thetransaction will “enhance Intact’s business profile by expandingand diversifying its Canadian [P&C] operations. As a result ofthe acquisition, Intact will increase its market sharesignificantly in Quebec and Atlantic Canada and reduce its relativeexposure to Ontario auto insurance.”

But Murray adds these advantages “will be more than offset bythe decrease in financial flexibility given the proposed fundingstructure.”

Will Burn, a Toronto-based financial institutions analyst forMoody's, says: “Intact will fund the acquisition through anunderwritten equity issue with net proceeds of $800 million (whichmay increase if underwriters exercise the overallotment option),the sale of approximately $500 million of investments and $1.3billion of senior unsecured bank loans. The new bank loans areexpected to be partly repaid through the issuance of medium-termnotes and preferred shares.”

Moody’s says pro-forma adjusted leverage at the time of closingis expected to be in the low-to-mid 30 percent range, compared toapproximately 23 percent currently, “reflecting the significant useof internal resources and new debt to finance the acquisition.”