Standard & Poor’s Ratings Services has removed its ratings on Cooper Gay Swett & Crawford Ltd. (CGSC) from CreditWatch with developing implications, where S&P initially placed them Nov. 13, 2015.
At the same time, S&P has raised its long-term corporate credit rating on CGSC to ‘B’ from ‘B-‘ and raised all debt ratings by one notch. S&P’s outlook for CSGC is stable.
The rating moves come after U.K.-based insurance broker CGSC said it has reached an agreement to sell its North American business unit to BB&T and will use proceeds to pay down all outstanding debt.
According to S&P credit analyst Julie Herman, the elimination of balance-sheet debt improves the firm’s financial risk profile assessment, though this is tempered by deterioration in its business risk profile assessment.
According to S&P, since its levered buyout by Lightyear Capital in January 2013, CGSC has experienced steep declines in revenues and earnings and a resultant continued worsening balance between earnings and debt load. According to S&P, CGSC’s credit-protection measures had reached “unsustainable levels,” with financial leverage reaching as high as 11x as of the 12 months ended Sept. 30, 2015.
S&P said CGSC’s financial profile “immediately improves” with this transaction because the company is using proceeds from the sale to eliminate all balance-sheet debt. The deal will reduce the financial leverage significantly to about 3.5x, with the adjusted debt consisting entirely of lease and pension obligations.
S&P said the significant debt reduction is mitigated by a materially lower EBITDA base, as the North American division being sold is generating the majority of the group’s profit margin.
Post-transaction, the company continues to be majority owned by private-equity sponsor Lightyear Capital.