NXT Capital has agreed with Aflac to manage its new $500 million private debt portfolio, the US insurance behemoth said on Friday.
The investments consist of floating-rate senior secured loans to mid-market companies, according to a statement. Aflac Global Investments, the asset management division of Aflac Incorporated, will finance the debt portfolio out of the Japan general account.
Frederick J. Crawford, executive vice president and chief financial officer, said the NXT agreement “will provide solid margins and less volatility after accounting for hedge costs” in the Japanese account.
The agreement also includes a $50 million minority stake investment in NXT Capital, Aflac said.
“As noted on our 2017 outlook call, Aflac made a strategic asset allocation decision to utilize floating-rate assets as a core part of its hedged U.S. dollar program for Aflac Japan,” Eric M. Kirsch, executive vice president and chief investment officer, said in the statement.
Robert Radway, chairman and chief executive officer at NXT, told Private Debt Investor that in a rising interest environment, “floating rate senior loans offer an excellent hedge against higher interest rates as their coupon is tied to the 30-day or 90-day LIBOR index”.
This optimism surrounding rates echoes the positive expectations NXT Capital had for the mid-market floating rate debt this year, executives wrote for PDI in February.
“The US economy is performing better than most developed countries and the expectation of rising interest rates will enhance the appeal of floating rate loans,” Heath Fuller, head of capital markets, and Neil Rudd, chief financial officer, wrote then.
Aflac was not immediately available to comment further.
Aflac Japan is the Aflac’s “largest earnings contributor,” Daniel P. Amos, company chairman and chief executive officer, said in its fourth quarter 2016 earnings report.
For the full 2016, the Japan account’s premium income was $13.5 billion, or 12.4 percent higher than a year ago, and significantly above the full year premium income of the firm’s second general account for Aflac US of $5.5 billion.
Aflac Global Investments manages more than $110 billion across Aflac Japan and Aflac US, according to the statement.
The deal with Aflac comes on the heals of NXT Capital’s hire last month of Linda Chaffin, who now manages the firm’s fundraising and investor relations work as the head of institutional marketing, as PDI reported.
NXT Capital has $8.8 billion of capital at its disposal.