Standard & Poor’s Ratings Services has lowered its counterparty credit rating on AmWINS Group Inc. to “B-” from “B” as a result of the company’s proposed $435 million refinancing. S&P also lowered its senior secured debt rating to “B-” from “B” on AmWINS’s first-lien term loan and its subordinated debt rating to “CCC” from “CCC+”on the company’s second-lien term loan.
S&P assigned its “B-” senior secured debt rating to AmWINS’s proposed $335 million senior credit facility, which consists of a six-year $285 million first-lien term loan and a five-year $50 million revolving credit line, and assigned its “CCC” subordinated debt rating to the company’s proposed seven-year $100 million second-lien term loan. The outlook on all ratings is stable.
S&P noted that the transactions are part of AmWINS intended recapitalization. The Company hopes to complete it during the second quarter of 2007 “in order to finance the acquisition of American Equity Underwriters’ (AEU) and pay out a partial return of capital in the form of dividends to its shareholders” (See related article).
S&P said it “believes that AEU could produce volatile annual EBITDA, and acknowledges the higher risk of insolvency for maritime insurers and the potential negative implications for broker/MGU cash flow.”
The ratings actions are in response to a shift in the company’s financing plans of redeeming a proportional amount of debt from the proceeds of its planned IPO to raising a material amount of additional debt while delaying an IPO.
S&P also cautioned that it would consider changing its outlook on the ratings to negative, or even downgrade the ratings, “should the company raise additional debt and/or its margins compress, precipitating it to produce EBITDA interest coverage of 1.5x or lower.”
On the other hand, if the company outperforms S&P’s expectations and establishes a track record of increased margins and lower debt levels, the outlook could be revised upward.