A.M. Best Co. has assigned a debt rating of “aa-” to the issuance of $600 million 7.768% medium-term notes due 2019 of Manulife Financial Corp., the rating agency said Wednesday.

The notes are considered senior debt and are issued under a pricing supplement dated April 1, 2009.

A.M. Best also has assigned a debt rating of “a” to non-cumulative preferred shares Series 4 issued by Manulife. This offering represents a five-year rate reset Class A shares issued at $25 per share. Proceeds from this issuance were approximately $450 million.

Both debt offerings were used for general corporate purposes, and have been assigned a negative outlook.

A.M. Best notes that Manulife has increased its leverage position from its historically low levels as part of the organization’s efforts to fortify its capital position in light of declining global equity markets. Coverage ratios also have declined from previously high levels.

In addition, the rating agency expects Manulife to record a lower level of fee income on its managed assets and higher reserve charges for the company’s equity-linked products. Manulife’s large portfolio of segregated fund products, which is only partially hedged, exposes the organization’s earnings and capital to equity market fluctuations, A.M. Best says.

The ratings continue to reflect Manulife’s leadership position in multiple global markets and profitability from its geographically diversified businesses, A.M. Best says.

Despite reduced earnings, Manulife’s risk-adjusted capitalization remains favorable, supported by a $2.275 billion common equity raise in fourth quarter 2008 and changes to the Canadian regulatory capital formula.

A.M. Best notes that Manulife had previously gained access to a $3 billion credit facility from a consortium of Canadian banks to bolster its capital position, which was reduced to $2 billion following the company’s equity raise.

IE