S&P’s Removes from Watch and Affirms USI Holdings Ratings

November 1, 2002

Standard & Poor’s has removed from CreditWatch and affirmed its single- ‘B’-plus ratings on San Francisco-based USI Holdings Corp. (USI) after the company successfully completed its IPO, selling 9 million shares for total gross proceeds of $90 million. Standard & Poor’s also said that the outlook on USI is positive.

“The net proceeds of about $78.4 million will be used to pay down debt, substantially reducing total-debt-to capital to 45.3% from the pre-IPO level of 68.5 percent,” explained Standard & Poor’s credit analyst Donovan Fraser.

The offering had been repeatedly delayed and ultimately reduced in size from initial price targets. However, the decreased leverage, pro forma equity in excess of $160 million, and the first quarter of positive net income in the company’s history in the second quarter of 2002 place the company on a surer footing than its pre-IPO capitalization and operating levels. Through June 30, 2002, the company has a year-to-date pretax loss from continuing operations of
$10.3 million, consisting of a first-quarter pretax loss of $13.2 million and second-quarter pretax income of $2.9 million.

Standard & Poor’s believes that the company should be better positioned to continue to further penetrate its target niche market of businesses with 20-999 employees and grow both organically and through measured acquisitions.

Standard & Poor’s also considers the company’s strategy of focusing on growing the specialized benefits segment to be a prudent strategy of earnings diversification given the cyclicality of the property/casualty sector.

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