MOODY'S ASSIGNS PROVISIONAL (P)B2 RATINGS TO MMM HOLDINGS, INC. AND NAMM HOLDINGS, INC.; ASSIGNS Ba2 INSURANCE FINANCIAL STRENGTH RATINGS TO MMM HEALTHCARE AND PRIMECARE MEDICAL NETWORK, INC.; OUTLOOK STABLE
$420 Million Senior Secured Bank Loan Rated
New York, July 21, 2005 -- Moody's Investors Service has assigned a provisional (P)B2 senior debt
rating to MMM Holdings, Inc.'s (MMM) and NAMM Holdings,
Inc.'s (NAMM) proposed $420 million senior secured
bank credit facility, which consists of a $400 million six
year term loan and a $20 million five year revolving credit facility.
The holding companies will remain part of the Straus Group and will become
subsidiaries of a new holding company, Aveta Holdings, LLC
(Aveta). Aveta, as the parent, will also be the ultimate
guarantor of the credit facility. In conjunction with these ratings,
Moody's also assigned Ba2 insurance financial strength ratings (IFSR)
to the regulated operating subsidiaries, MMM Healthcare, Inc.
(MMM Healthcare) and PrimeCare Medical Network, Inc. (PMNI).
The outlook on all the ratings is stable.
MMM and NAMM will be co-borrowers under the credit facility with
the proceeds split as follows: MMM -- term loan of $335million
and revolver of $20 million, NAMM -- term loan of $65
According to Moody's, the proceeds of the bank loan will be
used to fund the purchase of NAMM, repay existing debt at MMM,
and pay a shareholder dividend. The credit facility will have a
guarantee from Aveta, and the facility will be secured with the
pledge of the stock and assets of Aveta, as well as the pledge of
the stock of each of the borrowers and their regulated subsidiaries and
all assets of the non-regulated entities. The rating agency
also noted that, in addition to the senior secured credit facility,
Aveta will issue $30.5 million in unrated senior subordinated
Moody's B2 senior secured credit bank facility rating is based on
the consolidated results of MMM and NAMM and reflect the companies'
highly leveraged capital structure, including the large amount of
goodwill resulting from the transaction, the company's short
operating history, limited product offering and geographic area,
as well as the uncertainty which surrounds the future financial prospects
of the Medicare program. Although the companies comply with the
regulatory capital requirements of each jurisdiction in which they operate,
Moody's believes that the targeted consolidated capital adequacy on an
NAIC risk-based capital (RBC) basis is relatively weak at 50%
of company action level. An additional negative factor which impacts
the rating is the payment of a substantial shareholder dividend with the
excess proceeds from the borrowing.
The Ba2 IFSRs on the two regulated subsidiaries reflect their dependence
on the Medicare product and their low RBC levels, tempered somewhat
by their strong growth and earnings position.
Moody's ratings are based on the expectation that there are no changes
in the methodology used by the Centers for Medicare and Medicaid Services
(CMS) in determining the Medicare Advantage reimbursement rates,
that 100% of excess unregulated cash is used for debt repayment,
that the companies issue no additional debt, and maintain a consolidated
RBC of at least 50% of company action level. Moody's also
expects that there are no significant changes to the financial covenants
contained in the secured bank credit facility and all covenants will be
met or exceeded.
Moody's stated that the ratings could move up if NAIC RBC grows to 100%
of company action level, debt to EBITDA falls below 2 times,
EBITDA to interest expense exceeds 10 times, and membership growth
for 2005 and 2006 is in line with the projections of 12% and 6%,
respectively. However, if there is a significant adverse
change in Medicare reimbursement levels, if NAIC RBC falls below
50% of company action level, if debt to EBITDA exceeds 5
times, if EBITDA to interest expense falls below 3.5 times,
or if a significant portion of debt is not retired each year, then
Moody's said, the ratings could be moved down.
MMM Healthcare offers Medicare Advantage products exclusively to eligible
participants in Puerto Rico. Moody's notes that the company
currently enjoys being the market leader in providing Medicare Advantage
products in Puerto Rico and being reimbursed at a very favorable rate
from CMS, which determines the rates that health benefit companies
are paid to provide a Medicare Advantage product. As a result of
these circumstances, Moody's stated, the company has
been able to record impressive growth and earnings margins since it was
established in 2001.
While several competitors have entered the Medicare marketplace in Puerto
Rico in 2005, Moody's believes MMM Healthcare will retain
its dominant market position for the next several years. In addition,
while CMS reimbursement rates are in place for 2006, rates for 2007
and later are susceptible to unpredictable shifts in Medicare policy emanating
Moody's analysis indicates that MMM Healthcare could absorb some
reduction in reimbursement rates and still meet its debt obligations;
however, larger rate reductions would require some reduction in
benefits, and/or the addition of premiums and copays. Additionally,
the rating agency noted, significant reductions in the reimbursement
rates in excess of 20%, while unlikely, could result
in an inability of the company to meet its debt obligations.
NAMM is a medical management company that operates in California and Illinois.
Its regulated operating subsidiary, PMNI, consists of 10 owned
IPAs in Southern California that contract with major health care benefit
companies on a capitated basis to provide medical care to commercial and
The acquisition of NAMM, Moody's stated, provides some
product and geographic diversity to Aveta, with its California commercial
membership. However, Moody's notes that over the next
5 years, MMM Healthcare will remain the dominant portion of the
business with its revenues and earnings representing approximately 75%
of the total company.
The following ratings were assigned with a stable outlook:
MMM Holdings, Inc. -- provisional senior secured
debt rating of (P)B2;
NAMM Holdings, Inc. -- provisional senior secured
debt rating of (P)B2;
MMM Healthcare, Inc. -- insurance financial
strength rating of Ba2;
PrimeCare Medical Network, Inc. -- insurance
financial strength rating of Ba2.
The provisional ratings will become final upon receipt of and satisfactory
review of final credit agreement and covenants.
Aveta Holdings, LLC will be headquartered in Hackensack, NJ.
As of May 31, 2005 MMM Healthcare reported approximately $53
million in equity on a GAAP basis and membership of 92,400.
For the five month period ending May 31, 2005 total revenue was
$241 million. NAMM reported GAAP equity of approximately
$40 million and membership of 240,000 as of May 31,
2005. Total revenue for the first five months of 2005 was approximately
Moody's health insurance financial strength ratings (IFSR) are opinions
about the ability of life and health insurance companies to punctually
repay senior policyholder claims and obligations. Because IFSRs
are applied to operating life and health insurance companies, the
cash flows of which are regulated by the applicable state insurance department,
the IFSR is typically the highest rating within a corporate group.
For more information, visit our website at www.moodys.com/insurance
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service