AM Best has placed under review with negative implications the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Homesteaders Life Company (Homesteaders) (West Des Moines, IA). At the same time, AM Best has placed under review with negative implications the Long-Term Issue Credit Ratings of “bbb-” (Good) on Homesteaders’ $20 million, 7.75% surplus notes due 2053, and the $20 million 7.75% surplus notes due 2053.

These Credit Ratings (ratings) have been placed under review with negative implications following the recent announcement that an affiliate of Homesteaders, Viridian Acquisition Inc., together with Birch Hill Equity Partners Management Inc., will acquire all of the issued and outstanding common shares of Park Lawn Corporation (PLC) [TSX: PLC] in an all-cash transaction valued at approximately $900 million. Homesteaders, along with Birch Hill Equity Partners Management, Inc., plan to take PLC private. Homesteaders will have a $250 million equity stake in PLC while also issuing $150 million in preferred shares to a third-party.

With the PLC transaction, Homesteaders gains access to over 250 cemeteries, crematoria, funeral homes, chapels and event centers that PLC owns and operates throughout the United States and Canada. Since Homesteaders primarily distributes its products through funeral homes, the trend of funeral home consolidation has been a concern.

Although the transaction will provide Homesteaders with growth opportunities and diversify its operations through access to the at-need segment, the investment is sizeable relative to the company’s balance sheet. Financial leverage will be significantly elevated until the preferred shares are converted and there is complexity in executing the transaction. Homesteaders’ ratings will remain under review with negative implications pending successful execution of the transaction and until AM Best can properly assess the company’s rating fundamentals, both financially and operationally, given this transaction.

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