North Carolina-based wholesale brokerage AmWINS Group Inc. is seeking a $175 million add-on term loan for an acquisition.
The insurance broker owned by private-equity firm New Mountain Capital LLC may pay interest at 3.75 percentage points more than the London interbank offered rate, with a 1.25 percent minimum on the lending benchmark, the same rate as the $710 million remaining under a pact it obtained in February, according to a person with knowledge of the transaction who asked not to be identified because the terms aren’t set. The six-year debt, which will back an acquisition and refinance payment-in-kind notes, is being offered to lenders at 99.5 cents on the dollar.
[On Tuesday, ratings agency Moody's Investors Service affirmed the B2 corporate family rating and B2-PD probability of default rating of AmWINS Group.
Moody's also downgraded AmWINS' first-lien credit facility ratings to B2 from B1, based on the company's incremental financing plan. Moody's said AmWINS expects to draw down an incremental term loan of $175 million, using the proceeds plus cash on hand to repay $135 million of subordinated payment-in-kind (PIK) notes and to fund potential acquisitions.
Moody's said the downgrade of the first-lien credit facilities reflects the removal of rating uplift from the PIK notes (unrated), which are held by AmWINS' private equity sponsor, New Mountain Capital. The rating outlook for AmWINS is stable.
"The refinancing plan is modestly positive for AmWINS' credit profile," said Bruce Ballentine, Moody's lead analyst for the company. "The net increase in debt is more than offset by the lower interest rate on the first-lien term loan relative to the PIK notes." Moody's noted that potential acquisitions would boost the company's EBITDA, albeit with integration risk.
Moody's said AmWINS' ratings reflect its strong presence in wholesale and specialty insurance brokerage and its profitable growth over the past several years.
AmWINS benefits from broad product and geographic diversification and from its expertise in purchasing and integrating small and mid-sized firms, according to Moody's.
However, the ratings agency also said AmWINS' strengths are tempered by its significant financial leverage, integration risk associated with acquisitions, and exposure to errors and omissions, a risk inherent in professional services.
Giving effect to the incremental borrowing and potential acquisitions, Moody's estimates that AmWINS has a pro forma debt-to-EBITDA ratio in the range of 6x-6.5x. The ratings agency views such leverage as aggressive for the rating category and expects it to decline as a result of further EBITDA growth.]