Lincoln Accepts U.S. Rescue Funds, Plans Share Sale (Update4

June 15 (Bloomberg) -- Lincoln National Corp., the insurer that announced two rounds of job cuts this year, plans to raise $2.05 billion by accepting U.S. rescue funds and selling shares and debt to private investors. The stock dropped 11 percent.

Lincoln expects to issue about $950 million of preferred stock to the government through the Treasury’s Troubled Asset Relief Program, the Philadelphia-based life insurer said today in a statement. It also announced plans to offer $600 million of common shares on the market, and $500 million in senior debt.

Lincoln and Hartford Financial Services Group Inc. are tapping taxpayers after investment losses and costs to protect savers from declines in the equity markets drained capital. Lincoln has slashed the dividend, purchased reinsurance and scaled back on money-losing retirement products called variable annuities. The insurer announced plans today to divert capital to U.S. operations by selling a U.K. unit at a loss.

“Taking aid reiterates to us how quickly Lincoln’s financial condition has deteriorated,” Colin Devine, an analyst with Citigroup Inc., said today in a research note. “Lincoln’s long-term growth outlook remains a question mark. It remains to be seen how much it has suffered from client concerns about the company’s financial heath.”

Lincoln declined $1.92 to $15.83 at 4:02 p.m. in New York Stock Exchange composite trading. The stock fell 69 percent in the last 12 months, worse than 51 percent slide in the 11- company Standard and Poor’s Supercomposite Life & Health Insurance Index.

Rating Changes

The additional capital may help Lincoln avert further ratings downgrades, Standard & Poor’s said today in a statement, raising the insurer’s outlook to “stable” from “negative.” Lincoln was cut two levels by S&P in February and was downgraded three times this year by Moody’s Investors Service.

The insurer, led by Chief Executive Officer Dennis Glass, said the sale of the U.K. subsidiary to Toronto-based Sun Life Financial Inc. for 195 million pounds ($319 million) will generate a loss of $250 million to $275 million, according to a regulatory filing. The transaction is expected to be completed around the end of September, Lincoln said.

Lincoln, which has posted two straight quarterly losses, follows Hartford and Genworth Financial Inc. in pulling back from international markets. Hartford, which lost $2.7 billion in 2008, announced plans this year to halt sales in Japan and end all business in the U.K.

Writedown

Lincoln was hurt in the first quarter by a $600 million writedown to its variable annuities business, following Prudential Financial Inc., the second-biggest U.S. life insurer, in lowering the value of operations selling the savings vehicles. Lincoln expanded through its $8.2 billion Jefferson- Pilot Corp. acquisition in 2006.

Life insurers were left vulnerable to the financial crisis after taking “an ungodly amount of risk” on variable annuities, billionaire investor Warren Buffett said on May 3.

Lincoln and Hartford, based in the Connecticut city of the same name, are the only two life insurers to accept an investment from TARP after carriers applied for bailouts in the fourth quarter. While six were approved by Treasury last month, Prudential, Ameriprise Financial Inc. and Principal Financial Group Inc. rejected TARP and raised capital from private investors. Allstate Corp. also refused aid.

Bailout

Lincoln positioned itself to tap federal bailout funds by agreeing in November to buy a Goodland, Indiana savings and loan with three employees and $7.3 million of assets. The deal for Newton County Loan & Savings entitled the insurer to apply for status as a federally regulated lender, a prerequisite for government aid.

TARP “provides additional capital flexibility,” Lincoln said in the statement. “The company expects to repay this financing as soon as practicable.”

Lincoln said it was approved by Treasury for as much as $2.5 billion in aid and would announce the final amount of its participation in the program by the end of June.

American International Group Inc., which sells property- casualty coverage and life insurance, was saved by four U.S. bailouts starting in September.

Lincoln said in March it would free up $240 million in capital reserves by entering into a reinsurance agreement with Goldman Sachs Group Inc. The accord transfers risk to a subsidiary of the bank and will reduce Lincoln’s yearly net income by $20 million, Lincoln said.

JPMorgan Chase & Co. and Bank of America Corp.’s Merrill Lynch are leading the share sale to private investors. Goldman Sachs and Morgan Stanley are helping on the offering.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.