IPO Preview: ING U.S.

| About: Voya Financial, (VOYA)

Based in New York, NY, ING U.S. (NYSE:VOYA) scheduled a $1.45 billion IPO with a market capitalization of $5.8 billion at a price range mid-point of $22.50, for Thursday, May 2, 2013.

VOYA is one of five new IPOs scheduled for the week of April 29. The full IPO calendar is here.

  • S-1 filed April 16, 2013
  • Manager, Joint Managers: Morgan Stanley; Goldman; Citi; BofA Merrill Lynch; Credit Suisse; Deutsche Bank; J.P. Morgan.
  • Co Managers: ING; Barclays; RBC Capital; SunTrust Robinson Humphrey/ Evercore/ Keefe, Bruyette & Woods; Raymond James; Sandler O'Neill; Wells Fargo; BNP PARIBAS; BNY Mellon; COMMERZBANK; HSBC; Mediobanca; Piper Jaffray; Ramirez; Williams Capital.

VOYA is an investment, life insurance spin-off, carve-out of Dutch-based ING, which has a market capitalization above $30 billion.

Earnings were positive in 2012, and trailing 12-months P/E multiple is 12.5, based on the income allocated to VOYA.

Benefits and expenses have declined from 100% of 2010 revenues to 94% of 2012 revenues. That decline created a profit for VOYA.

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Comparable companies included MetLife (NYSE:MET), Hartford Financial (NYSE:HIG) and Lincoln National (NYSE:LNC). Here are some comparative observations.

. VOYA has the lowest market cap.

. For the month ended April 23, the sector's performance is mixed, although the stocks were up April 22 & April 23.

. VOYA's 2012 revenue was down from 2011 revenue

. The revenue rate of change was negative for 2010 and 2012.

. VOYA's profit was up for 2012.

. VOYA's P/E ratio is lower than MET and HIG, but higher than LNC.

. Net income was down for 2009, 2010 and 2011, but was up for 2012.

. The rise in net income was driven by a decline in benefits and expenses.

. VOYA's price-to-sales ratio is about the same as MET's.

. VOYA's price-to-book is 2nd lowest.

Buy VOYA on the IPO, especially if you can afford to hold it for several weeks or longer.

Organization & Business
ING U.S., Inc. is a wholly owned subsidiary of ING Insurance International B.V., which is a wholly owned subsidiary of ING Verzekeringen N.V. ("ING V"), which is a wholly owned subsidiary of ING Insurance Topholding N.V., which is a wholly owned subsidiary of ING Groep N.V. ("ING Group" or "ING"), the ultimate parent company.

ING is a global financial services holding company based in The Netherlands, with American Depository Shares listed on the New York Stock Exchange under the symbol "ING." The ultimate parent, ING, has a market capitalization of over $30 billion.

ING U.S. - the spin-off - is a financial services organization in the United States that offers a broad range of retirement services, annuities, investment management services, mutual funds, life insurance, group insurance and supplemental health products, guaranteed investment contracts, and funding agreements.

ING has announced the anticipated separation of its global banking and insurance businesses. While all options for effecting this separation remain open, ING has announced that the base case for this separation includes an initial public offering ("IPO") of ING U.S., Inc., which together with its subsidiaries, constitutes ING's U.S.-based retirement, investment management, and insurance operations. ING U.S., Inc.

Products & Services
VOYA provides its principal products and services in three businesses (Retirement Solutions, Investment Management and Insurance Solutions) and reports results through five ongoing operating segments, including Retirement, Annuities, Investment Management, Individual Life and Employee Benefits. The Company also has a Corporate segment, which includes the financial data not directly related to the businesses and Closed Block segments.

· The Retirement Solutions business provides its products and services through two segments: Retirement and Annuities:

The retirement segment provides tax-deferred, employer-sponsored retirement savings plans and administrative services in corporate, health, education and government markets.

The Annuities segment provides fixed and indexed annuities, tax-qualified mutual fund custodial products and payout annuities for pre-retirement wealth accumulation and post-retirement income management.

· The Investment Management business provides its products and services through a single segment, also called Investment Management:

· The Insurance Solutions business provides its products and services through two segments: Individual Life and Employee Benefits:

VOYA has historically operated with a capital structure that reflected a status as a wholly owned subsidiary of ING Group, and has not historically relied on direct access to the capital markets for financing needs.

To prepare for VOYA's separation from ING Group and operation as a standalone public company, VOYA has undertaken various recapitalization initiatives to more closely align its capital structure-both at the ING U.S., Inc. holding company level and on a consolidated basis-with other U.S. public companies.

As of December 31, 2012, VOYA had completed the following steps in connection with this recapitalization:

• Contribution of intercompany loans from ING V. During 2010 and 2011, ING V caused to be contributed to VOYA $7.0 billion of borrowings made by VOYA under certain intercompany loan agreements. As a result of the contribution, the debt was immediately extinguished.

• $5.0 billion senior unsecured credit facility. On April 20, 2012, VOYA entered into a $5.0 billion senior unsecured credit facility with a syndicate of banks, which replaced financing that was either internally funded or guaranteed by ING V.

• Receipt of cash distributions. In the second quarter of 2012, VOYA's insurance subsidiaries domiciled in Colorado, Connecticut, Iowa and Minnesota made distributions to ING U.S., Inc. or Lion Holdings in the aggregate amount of $800.0 million. VOYA contributed $500.0 million of the distributions to VOYA's Cayman Islands insurance subsidiary, SLDI, through repayment of $100.0 million of intercompany loans and a capital contribution to SLDI of $400.0 million.

• $850.0 million inaugural senior notes offering. On July 13, 2012, VOYA issued $850.0 million principal amount of 5.5% Senior Notes due 2022 (the "2022 Notes") in a private placement to institutional investors.

These steps have contributed significantly to achieving VOYA's recapitalization goals, and have helped VOYA achieve:

• A decrease in Financial Leverage-to-Total Capital Ratio from 56% at December 31, 2010 to 27% at December 31, 2012;

• An estimated combined RBC (Risk Based Capital) ratio for U.S. insurance subsidiaries of 526%, as of December 31, 2012, despite having distributed $800 million from U.S. insurance subsidiaries in 2012 (VOYA estimates 430% after giving effect to the $1.4 billion of distributions described below);

• A decrease of $7.9 billion, between December 31, 2009 and December 31, 2012, in debt provided by or guaranteed by ING V or ING Group; and

• An increase in cash at the ING U.S., Inc. holding company level by $356 million during 2012.

Between January 1, 2013 and the date of the IPO, VOYA has also completed, or expects to complete, the following steps in connection with the recapitalization:

• $1.0 billion five-year senior notes offering. On February 11, 2013, VOYA issued $1.0 billion principal amount of 2.9% Senior Notes due 2018 (the "2018 Notes") in a private placement to institutional investors. Similar to the Senior Unsecured Credit Facility and the 2022 Notes, these notes are not guaranteed by ING Group or ING V.

• Repayment of all outstanding commercial paper guaranteed by ING V.

• Repayment of significant amounts owed on the Term Loan Agreement of the Revolving Credit Facility.

In connection with the closing of this offering, VOYA expects to complete the following additional steps related to this recapitalization:

• The receipt of gross proceeds of $600.0 million from the IPO

• The receipt of a total of $1.4 billion of distributions from principal life subsidiaries; and

• The contribution of $1.8 billion of capital to SLDI, VOYA's Cayman Islands insurance subsidiary, in order to strengthen capital and allow for the cancellation of the $1.5 billion contingent capital LOC with ING Bank.

Competition includes Mass Mutual, Hartford, Prudential (NYSE:PRU), Sun Life (NYSE:SLF), MetLife, Hartford Financial, Lincoln National.

Dividend Policy
VOYA intends to pay quarterly cash dividends on its common stock at an initial amount of $0.01 per share, which is less than .2% on a annual basis.

Use Of Proceeds
VOYA expects to net $558 million from IPO proceeds from selling 42% of the IPO. 58% of the IPO proceeds will be paid to ING's (the parent) subsidiaries.

IPO proceed allocations are detailed above under 'RECAPITALIZATION.'

Anticipated Financing Activities
VOYA currently anticipates that shortly after or in the months following this IPO, VOYA will offer $700 million principal amount of long-term junior subordinated debt securities, which, under certain circumstances, may limit VOYA's ability to pay dividends on or repurchase common stock.

VOYA also currently anticipates issuing $400 million of senior unsecured notes shortly after or in the months following this IPO.

Disclaimer: This VOYA IPO report is based on a reading and analysis of VOYA's S-11A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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