SEC Company Response from Brighthouse Financial, (BHF) — Dec 5, 2016
Brighthouse Financial, Inc.
Date: Dec. 5, 2016 · CIK: 0001685040 · Accession: 0001193125-16-785321
AI Filing Summary & Sentiment
File numbers found in text: 001-37905
Letter
Via EDGAR and E-mail Division of Corporation Finance Attention: Office of Healthcare and Insurance Brighthouse Financial, Inc. Form 10-12B Filed October 5, 2016 File No. 001-37905
Dear Ms. Hayes:
This letter responds to the comments set forth in the letter, dated November 3, 2016, to Anant Bhalla, Chief Financial Officer of Brighthouse Financial, Inc. (the “Company” or “we”), from the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) regarding the above-referenced registration statement on Form 10 filed with the Commission on October 5, 2016 (the “Registration Statement”).
Concurrently with this letter, the Company is electronically transmitting Amendment No. 1 to the Registration Statement (the “Amendment”), which Amendment includes an amended Information Statement as Exhibit 99.1 (the “Information Statement”), for filing under the Securities Exchange Act of 1934, as amended. The Amendment includes revisions made in response to the comments of the Staff as well as other changes. We have enclosed for your convenience one copy of the Amendment that has been marked to show changes made to the originally filed Registration Statement.
Each of the Staff’s comments is set forth in bold, followed by the Company’s response to each comment. As a result of the revisions to the Registration Statement, some page references have changed. The page references in the comments refer to the page numbers of the originally filed Information Statement and the page references in the responses refer to page numbers in the amended Information Statement. Capitalized terms used herein but not otherwise defined have the meanings assigned to them in the Amendment.
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
Exhibit 99.1 — Information Statement
Summary
The Distribution, page 13
1. Please include a question and answer relating to whether MetLife can decide to cancel the distribution of Brighthouse common stock even if all the conditions have been met.
Response: The Company has provided the requested disclosure in the Amendment. Please see page 17 of the Information Statement in response to the Staff’s comment.
2. We note your disclosures on pages 64 and 85 that you intend to incur substantial indebtedness in connection with the separation and will use a significant portion of the proceeds to pay a dividend to MetLife. Please provide information about this financing arrangement including the amount you intend to borrow and the amount that you intend to pay to MetLife.
Response: The Company expects to borrow a substantial amount of funds in connection with the separation in the form of bank debt or debt securities issued to third-party lenders or investors. The amount of borrowing will allow the Company to achieve the following goals at the time of the distribution:
•
adequate liquidity at the holding company;
•
a debt-to-capital ratio of approximately 20%; and
•
$3.0 billion of assets in excess of CTE95 to support the Company’s variable annuity contracts.
Consistent with these goals, the Company expects to use the proceeds of the borrowing to provide additional capital to the Company’s operating subsidiaries and liquidity to its holding company. Any borrowing in excess of the amounts needed to satisfy the Company’s goals will be paid to MetLife either as a dividend or as partial consideration for MetLife’s transfer of assets to the Company.
On December 2, 2016, the Company entered into a $3.0 billion three-year senior unsecured delayed draw term loan agreement with a bank syndicate. Amounts under the term loan agreement are available, subject to certain conditions, after the completion of the contribution by MetLife of entities to Brighthouse Intermediate Company (the “Initial Contribution”) and the completion of the contribution by MetLife of Brighthouse Intermediate Company to the Company. Alternatively, after the Initial Contribution, the Company may, subject to certain conditions, draw down amounts from available commitments provided that
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
Brighthouse Intermediate Company provides a guaranty of repayment of such obligations. There were no outstanding borrowings as of December 5, 2016. On December 2, 2016, the Company also entered into a $2.0 billion five-year senior unsecured revolving credit facility with a bank syndicate. Borrowings and issuances of letters of credit may commence after completion of the distribution, and shortly prior to the distribution if certain conditions are satisfied.
Response: The Company has provided the requested disclosure in the Amendment. Please see pages 15, 34, 67, 89, 174 and 175 of the Information Statement in response to the Staff’s comment.
Summary Risk Factors, page 18
3. Please revise the description of your strengths, strategy and risks factors to ensure a balanced presentation. The risk factor discussion should be as prominent in detail and presentation as the discussion of your strengths and strategy. Please relocate the risk factor discussion to immediately follow the discussion of your strengths, expand each bullet to provide additional detail and highlight any risks relating to the spin-off and changes to your business by addressing them first.
Response: The Company has provided the requested revised disclosure in the Amendment. Please see pages 9 and 10 of the Information Statement in response to the Staff’s comment.
Risk Factors
We will incur significant indebtedness in connection with the separation…, page 31
4. Please quantify the significant indebtedness. Similarly, revise “We will incur substantial indebtedness in connection with the separation, and the degree to which we will be leveraged following completion of the distribution and separation may materially and adversely affect our results of operations and financial condition.”
Response: The Company expects to borrow a substantial amount of funds in connection with the separation in the form of bank debt or debt securities issued to third-party lenders or investors. The amount of borrowing will allow the Company to achieve the following goals at the time of the distribution:
•
adequate liquidity at the holding company;
•
a debt-to-capital ratio of approximately 20%; and
•
$3.0 billion of assets in excess of CTE95 to support the Company’s variable annuity contracts.
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
Consistent with these goals, the Company expects to use the proceeds of the borrowing to provide additional capital to the Company’s operating subsidiaries and liquidity to its holding company. Any borrowing in excess of the amounts needed to satisfy the Company’s goals will be paid to MetLife either as a dividend or as partial consideration for MetLife’s transfer of assets to the Company.
On December 2, 2016, the Company entered into a $3.0 billion three-year senior unsecured delayed draw term loan agreement with a bank syndicate. Amounts under the term loan agreement are available, subject to certain conditions, after the completion of the Initial Contribution and the completion of the contribution by MetLife of Brighthouse Intermediate Company to the Company. Alternatively, after the Initial Contribution, the Company may, subject to certain conditions, draw down amounts from available commitments provided that Brighthouse Intermediate Company provides a guaranty of repayment of such obligations. There were no outstanding borrowings as of December 5, 2016. On December 2, 2016, the Company also entered into a $2.0 billion five-year senior unsecured revolving credit facility with a bank syndicate. Borrowings and issuances of letters of credit may commence after completion of the distribution, and shortly prior to the distribution if certain conditions are satisfied.
Response: The Company has provided the requested disclosure in the Amendment. Please see pages 15, 34, 67, 89, 174 and 175 of the Information Statement in response to the Staff’s comment.
5. If you do not have a loan commitment, please disclose the possibility that you might not be able to enter into an unsecured credit facility on acceptable terms.
Response: The Company now has a loan commitment as discussed in the responses to comments 2. and 4.
We may experience difficulty in marketing and distributing products through our distribution channels, page 57
6. We note your statement that a significant distributor has elected to suspend their distribution relationships with you. Please identify the distributor and provide additional disclosure about the impact that this has had or is expected to have on your operations.
Response. The Company has provided the requested disclosure in the Amendment. Please see page 60 of the Information Statement in response to the Staff’s comment.
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
The Separation and Distribution Reasons for the Distribution, page 68
7. Please revise your disclosure to discuss how the distribution will impact MetLife’s potential re-designation as a non-bank systemically important financial institution and the applicability of the DOL Fiduciary Rule.
Response: In evaluating the efficacy of a potential separation transaction MetLife considered several business, operational and economic factors. The principal factors considered included (1) facilitating investors’ ability to independently value the Company and MetLife based on their respective operational and financial characteristics, (2) increasing the predictability of MetLife’s cash flows over time and (3) enabling the Company to take advantage of a retail dedicated platform to increase responsiveness to the U.S. retail market. While the separation will result in MetLife becoming a smaller and less complex organization, the principal Federal regulatory factor considered by MetLife was that the separation would mitigate the impact of a potential redesignation of MetLife as a non-bank systemically important financial institution (“SIFI”).
If MetLife were so re-designated as a non-bank SIFI prior to the distribution or while MetLife is deemed to control the Company, and the Federal Reserve Board implements rules that require insurers that are non-bank SIFIs to comply with capital standards or regimes that do not take into account the insurance business model and the differences between banks and insurers, the business conducted by the Company could subject MetLife to enhanced capital requirements that could put MetLife at a significant competitive disadvantage compared to its peer insurers that are not non-bank SIFIs. The Company, as a part of MetLife, could be required to raise the price of the products it offers, reduce the amount of risk it takes on, or stop offering certain products altogether. Separating the Company from MetLife would reduce the impact of any such enhanced capital requirements on MetLife, and potentially the Company, if MetLife were re-designated as a non-bank SIFI. However, the Company, because of its size, could be separately evaluated by the FSOC and designated as a non-bank SIFI and there can be no assurance that the Company will not be so designated. This is discussed on pages 48, 249, and 250 of the Information Statement.
The final DOL Fiduciary Rule on investment advice and related exemptions, which was released by the DOL on April 8, 2016, has many provisions that relate specifically to the sale of annuity products to qualified retirement plans and IRAs. Contracts entered into prior to April 10, 2017, the applicability date of the final regulations, are generally “grandfathered” and as such are not subject to the requirements of the rule and related exemptions. To retain “grandfathered” status, no investment recommendations may be made after the applicability date of the final regulations with respect to such annuity products that were sold to plans or IRAs.
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
MetLife sold its former Retail segment’s proprietary distribution channel, MetLife Premier Client Group, in July 2016 to Massachusetts Mutual Life Insurance Company to complete a transition to an independent third party distribution model. By ceasing to distribute retail IRA products and/or retail annuities sold into ERISA plans and IRAs through a proprietary distribution channel, MetLife and the Company believe that the applicability of the vast majority of the rule provisions targeted at those products under the DOL Fiduciary Rule will be reduced. The separation and distribution of the Company does not itself implicate the applicability of the DOL Fiduciary Rule.
Conditions to the Distribution, page 71
8. Please clarify if you are able to waive any of the conditions. If you are, please identify the conditions that are subject to waiver.
Response: The Company has the ability to waive the conditions to the distribution to the extent described in the Information Statement. The Company has updated the disclosure in the Amendment to reflect this point. Please see pages 74 and 75 of the Information Statement in response to the Staff’s comments.
Brighthouse, page 82
9. Please expand your discussion to identify and quantify the MetLife liabilities you intend to assume.
Response. The Company has provided the requested revised disclosure in the Amendment. Please see page 86 of the Information Statement in response to the Staff’s comment.
Recapitalization, page 85
10. We note the tabular presentation of your planned financing and other capital transactions expected to occur before or at the time of the distribution. Please tell us your consideration of including unaudited pro forma financial statements in your filing to give effect to these transactions, as well as the eventual distribution of Brighthouse common stock. Refer to Article 11 of Regulation S-X.
Response: As of the date of the initial filing of the Registration Statement and the filing of the Amendment, none of the conditions in Regulation S-X Rule 11-01 were met and, therefore, no pro forma financial information relating to the transactions highlighted under Recapitalization were included in the filing. Specifically, as of the initial filing and the filing of the Amendment, none of the transactions occurred or were deemed probable since management was still developing the strategy for the Company’s financing and capital transactions,
Ms. Suzanne Hayes
United States Securities and Exchange Commission
December 5,
Page
some of which also require regulatory approval. Once the conditions are met, the Company will include pro forma information as required under Regulation S-X Rule 11-02 in subsequent amendments to the Registration Statement.
Summary of Critical Accounting Estimates
Liability for Future Policy Benefits, page 94
11. You disclose that during the second quarter of 2016, MetLife accelerated its annual review of actuarial assumptions for its U.S. retail variable annuity business in light of the availability of a larger body of cumulative actual experience data than had been previously available. As a result of this review, you made changes to certain contract holder behavior and long-term economic assumptions. These updates resulted in a substantial charge ($1.
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CORRESP 1 filename1.htm SEC Response Letter Christine M. DeBiase General Counsel and Corporate Secretary Brighthouse Financial, Inc. Gragg Building 11225 North Community House Road Charlotte, North Carolina 28277 Tel (980) 949-3626 Fax (212) 251-1546 December 5, 2016 Via EDGAR and E-mail U.S. Securities and Exchange Commission Division of Corporation Finance 100 F Street N.E. Washington D.C. 20549 Attention: Suzanne Hayes Assistant Director Office of Healthcare and Insurance Re: Brighthouse Financial, Inc. Form 10-12B Filed October 5, 2016 File No. 001-37905 Dear Ms. Hayes: This letter responds to the comments set forth in the letter, dated November 3, 2016, to Anant Bhalla, Chief Financial Officer of Brighthouse Financial, Inc. (the “Company” or “we”), from the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) regarding the above-referenced registration statement on Form 10 filed with the Commission on October 5, 2016 (the “Registration Statement”). Concurrently with this letter, the Company is electronically transmitting Amendment No. 1 to the Registration Statement (the “Amendment”), which Amendment includes an amended Information Statement as Exhibit 99.1 (the “Information Statement”), for filing under the Securities Exchange Act of 1934, as amended. The Amendment includes revisions made in response to the comments of the Staff as well as other changes. We have enclosed for your convenience one copy of the Amendment that has been marked to show changes made to the originally filed Registration Statement. Each of the Staff’s comments is set forth in bold, followed by the Company’s response to each comment. As a result of the revisions to the Registration Statement, some page references have changed. The page references in the comments refer to the page numbers of the originally filed Information Statement and the page references in the responses refer to page numbers in the amended Information Statement. Capitalized terms used herein but not otherwise defined have the meanings assigned to them in the Amendment. Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 2 Exhibit 99.1 — Information Statement Summary The Distribution, page 13 1. Please include a question and answer relating to whether MetLife can decide to cancel the distribution of Brighthouse common stock even if all the conditions have been met. Response: The Company has provided the requested disclosure in the Amendment. Please see page 17 of the Information Statement in response to the Staff’s comment. 2. We note your disclosures on pages 64 and 85 that you intend to incur substantial indebtedness in connection with the separation and will use a significant portion of the proceeds to pay a dividend to MetLife. Please provide information about this financing arrangement including the amount you intend to borrow and the amount that you intend to pay to MetLife. Response: The Company expects to borrow a substantial amount of funds in connection with the separation in the form of bank debt or debt securities issued to third-party lenders or investors. The amount of borrowing will allow the Company to achieve the following goals at the time of the distribution: • adequate liquidity at the holding company; • a debt-to-capital ratio of approximately 20%; and • $3.0 billion of assets in excess of CTE95 to support the Company’s variable annuity contracts. Consistent with these goals, the Company expects to use the proceeds of the borrowing to provide additional capital to the Company’s operating subsidiaries and liquidity to its holding company. Any borrowing in excess of the amounts needed to satisfy the Company’s goals will be paid to MetLife either as a dividend or as partial consideration for MetLife’s transfer of assets to the Company. On December 2, 2016, the Company entered into a $3.0 billion three-year senior unsecured delayed draw term loan agreement with a bank syndicate. Amounts under the term loan agreement are available, subject to certain conditions, after the completion of the contribution by MetLife of entities to Brighthouse Intermediate Company (the “Initial Contribution”) and the completion of the contribution by MetLife of Brighthouse Intermediate Company to the Company. Alternatively, after the Initial Contribution, the Company may, subject to certain conditions, draw down amounts from available commitments provided that Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 3 Brighthouse Intermediate Company provides a guaranty of repayment of such obligations. There were no outstanding borrowings as of December 5, 2016. On December 2, 2016, the Company also entered into a $2.0 billion five-year senior unsecured revolving credit facility with a bank syndicate. Borrowings and issuances of letters of credit may commence after completion of the distribution, and shortly prior to the distribution if certain conditions are satisfied. Response: The Company has provided the requested disclosure in the Amendment. Please see pages 15, 34, 67, 89, 174 and 175 of the Information Statement in response to the Staff’s comment. Summary Risk Factors, page 18 3. Please revise the description of your strengths, strategy and risks factors to ensure a balanced presentation. The risk factor discussion should be as prominent in detail and presentation as the discussion of your strengths and strategy. Please relocate the risk factor discussion to immediately follow the discussion of your strengths, expand each bullet to provide additional detail and highlight any risks relating to the spin-off and changes to your business by addressing them first. Response: The Company has provided the requested revised disclosure in the Amendment. Please see pages 9 and 10 of the Information Statement in response to the Staff’s comment. Risk Factors We will incur significant indebtedness in connection with the separation…, page 31 4. Please quantify the significant indebtedness. Similarly, revise “We will incur substantial indebtedness in connection with the separation, and the degree to which we will be leveraged following completion of the distribution and separation may materially and adversely affect our results of operations and financial condition.” Response: The Company expects to borrow a substantial amount of funds in connection with the separation in the form of bank debt or debt securities issued to third-party lenders or investors. The amount of borrowing will allow the Company to achieve the following goals at the time of the distribution: • adequate liquidity at the holding company; • a debt-to-capital ratio of approximately 20%; and • $3.0 billion of assets in excess of CTE95 to support the Company’s variable annuity contracts. Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 4 Consistent with these goals, the Company expects to use the proceeds of the borrowing to provide additional capital to the Company’s operating subsidiaries and liquidity to its holding company. Any borrowing in excess of the amounts needed to satisfy the Company’s goals will be paid to MetLife either as a dividend or as partial consideration for MetLife’s transfer of assets to the Company. On December 2, 2016, the Company entered into a $3.0 billion three-year senior unsecured delayed draw term loan agreement with a bank syndicate. Amounts under the term loan agreement are available, subject to certain conditions, after the completion of the Initial Contribution and the completion of the contribution by MetLife of Brighthouse Intermediate Company to the Company. Alternatively, after the Initial Contribution, the Company may, subject to certain conditions, draw down amounts from available commitments provided that Brighthouse Intermediate Company provides a guaranty of repayment of such obligations. There were no outstanding borrowings as of December 5, 2016. On December 2, 2016, the Company also entered into a $2.0 billion five-year senior unsecured revolving credit facility with a bank syndicate. Borrowings and issuances of letters of credit may commence after completion of the distribution, and shortly prior to the distribution if certain conditions are satisfied. Response: The Company has provided the requested disclosure in the Amendment. Please see pages 15, 34, 67, 89, 174 and 175 of the Information Statement in response to the Staff’s comment. 5. If you do not have a loan commitment, please disclose the possibility that you might not be able to enter into an unsecured credit facility on acceptable terms. Response: The Company now has a loan commitment as discussed in the responses to comments 2. and 4. We may experience difficulty in marketing and distributing products through our distribution channels, page 57 6. We note your statement that a significant distributor has elected to suspend their distribution relationships with you. Please identify the distributor and provide additional disclosure about the impact that this has had or is expected to have on your operations. Response. The Company has provided the requested disclosure in the Amendment. Please see page 60 of the Information Statement in response to the Staff’s comment. Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 5 The Separation and Distribution Reasons for the Distribution, page 68 7. Please revise your disclosure to discuss how the distribution will impact MetLife’s potential re-designation as a non-bank systemically important financial institution and the applicability of the DOL Fiduciary Rule. Response: In evaluating the efficacy of a potential separation transaction MetLife considered several business, operational and economic factors. The principal factors considered included (1) facilitating investors’ ability to independently value the Company and MetLife based on their respective operational and financial characteristics, (2) increasing the predictability of MetLife’s cash flows over time and (3) enabling the Company to take advantage of a retail dedicated platform to increase responsiveness to the U.S. retail market. While the separation will result in MetLife becoming a smaller and less complex organization, the principal Federal regulatory factor considered by MetLife was that the separation would mitigate the impact of a potential redesignation of MetLife as a non-bank systemically important financial institution (“SIFI”). If MetLife were so re-designated as a non-bank SIFI prior to the distribution or while MetLife is deemed to control the Company, and the Federal Reserve Board implements rules that require insurers that are non-bank SIFIs to comply with capital standards or regimes that do not take into account the insurance business model and the differences between banks and insurers, the business conducted by the Company could subject MetLife to enhanced capital requirements that could put MetLife at a significant competitive disadvantage compared to its peer insurers that are not non-bank SIFIs. The Company, as a part of MetLife, could be required to raise the price of the products it offers, reduce the amount of risk it takes on, or stop offering certain products altogether. Separating the Company from MetLife would reduce the impact of any such enhanced capital requirements on MetLife, and potentially the Company, if MetLife were re-designated as a non-bank SIFI. However, the Company, because of its size, could be separately evaluated by the FSOC and designated as a non-bank SIFI and there can be no assurance that the Company will not be so designated. This is discussed on pages 48, 249, and 250 of the Information Statement. The final DOL Fiduciary Rule on investment advice and related exemptions, which was released by the DOL on April 8, 2016, has many provisions that relate specifically to the sale of annuity products to qualified retirement plans and IRAs. Contracts entered into prior to April 10, 2017, the applicability date of the final regulations, are generally “grandfathered” and as such are not subject to the requirements of the rule and related exemptions. To retain “grandfathered” status, no investment recommendations may be made after the applicability date of the final regulations with respect to such annuity products that were sold to plans or IRAs. Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 6 MetLife sold its former Retail segment’s proprietary distribution channel, MetLife Premier Client Group, in July 2016 to Massachusetts Mutual Life Insurance Company to complete a transition to an independent third party distribution model. By ceasing to distribute retail IRA products and/or retail annuities sold into ERISA plans and IRAs through a proprietary distribution channel, MetLife and the Company believe that the applicability of the vast majority of the rule provisions targeted at those products under the DOL Fiduciary Rule will be reduced. The separation and distribution of the Company does not itself implicate the applicability of the DOL Fiduciary Rule. Conditions to the Distribution, page 71 8. Please clarify if you are able to waive any of the conditions. If you are, please identify the conditions that are subject to waiver. Response: The Company has the ability to waive the conditions to the distribution to the extent described in the Information Statement. The Company has updated the disclosure in the Amendment to reflect this point. Please see pages 74 and 75 of the Information Statement in response to the Staff’s comments. Brighthouse, page 82 9. Please expand your discussion to identify and quantify the MetLife liabilities you intend to assume. Response. The Company has provided the requested revised disclosure in the Amendment. Please see page 86 of the Information Statement in response to the Staff’s comment. Recapitalization, page 85 10. We note the tabular presentation of your planned financing and other capital transactions expected to occur before or at the time of the distribution. Please tell us your consideration of including unaudited pro forma financial statements in your filing to give effect to these transactions, as well as the eventual distribution of Brighthouse common stock. Refer to Article 11 of Regulation S-X. Response: As of the date of the initial filing of the Registration Statement and the filing of the Amendment, none of the conditions in Regulation S-X Rule 11-01 were met and, therefore, no pro forma financial information relating to the transactions highlighted under Recapitalization were included in the filing. Specifically, as of the initial filing and the filing of the Amendment, none of the transactions occurred or were deemed probable since management was still developing the strategy for the Company’s financing and capital transactions, Ms. Suzanne Hayes United States Securities and Exchange Commission December 5, 2016 Page 7 some of which also require regulatory approval. Once the conditions are met, the Company will include pro forma information as required under Regulation S-X Rule 11-02 in subsequent amendments to the Registration Statement. Summary of Critical Accounting Estimates Liability for Future Policy Benefits, page 94 11. You disclose that during the second quarter of 2016, MetLife accelerated its annual review of actuarial assumptions for its U.S. retail variable annuity business in light of the availability of a larger body of cumulative actual experience data than had been previously available. As a result of this review, you made changes to certain contract holder behavior and long-term economic assumptions. These updates resulted in a substantial charge ($1.