Hedge-fund manager John Paulson has been leaning on Hartford Financial to split in two, but the insurance team at Bernstein Research doesn’t think such a split can happen any time soon.
Such a move “makes sense conceptually,” Bernstein analyst Suneet Kamath writes in a note to clients today. But “from a practical perspective, we feel that such a move would be quite difficult” and doesn’t appear to be a priority for Hartford’s management.
One problem: While shareholders may support a split of the life insurance and property-casualty operations, debtholders may be reticent, something that Bernstein says hasn’t been given enough attention since Paulson went on the warpath on Feb. 8. The company has said a split would be difficult in part because Hartford couldn’t load up its life-insurance operation with too much of its $6.8 billion in debt now held at the holding company.
Debtholders, Kamath says, would want to see sustained free-cash flows from the life insurance operation before they’d agree to such an arrangement—something that Hartford management has said won’t happen in 2012.
Bernstein notes that any move Hartford makes to sell off smaller operations to help de-lever would require the insurer to sell from a position of weakness, making the company unlikely to get full value for those assets.
Any separation “will be a long and drawn out process,” the firm concludes. “As such, we would recommend investors focus on stocks with more concrete near-term catalysts.”