MOODY'S UPGRADES MMM HOLDINGS, INC. (SENIOR TO B1) AND NAMM HOLDINGS, INC. (SENIOR TO B1); OUTLOOK REMAINS STABLE
Approximately $287 Million of Debt Affected
New York, February 07, 2006 -- Moody's Investors Service has upgraded the senior debt rating of MMM Holdings,
Inc. (MMM) and NAMM Holdings, Inc. (NAMM) to B1 from
B2. In addition, the corporate family rating of MMM Holdings
was upgraded to B1 from B2. The insurance financial strength ratings
(IFSRs) of MMM Healthcare, Inc. (MMM Healthcare) and PrimeCare
Medical Network, Inc. (PMNI) were affirmed at Ba2.
The outlook on all the ratings remains stable.
Moody's stated that the key driver of the rating upgrade was the
repayment of $165.3 million of debt at MMM and NAMM.
According to the rating agency, Aveta Inc. (Aveta),
the parent company of MMM and NAMM, used a portion of the proceeds
it received from a private equity offering in December 2005 to repay a
portion of the debt at MMM and NAMM. This included $132.5
million of the outstanding $420 million term loan and the full
repayment of $32.8 million of subordinated debt.
Moody's noted that the financial leverage (debt to EBITDA) was reduced
to 2.5 times from 4.0 times as of December 31, 2005.
In addition, the coverage ratio (EBITDA to interest expense) is
expected to increase to 6.4 times during 2006 versus the previously
projected 4.1 times prior to the debt repayment.
Moody's said that the B1 senior secured credit bank facility rating is
based on the consolidated results of MMM and NAMM and reflects the companies'
highly leveraged capital structure, including the large amount of
goodwill, the companies' short operating history, dependence
on the Medicare Advantage product and geographic concentration in Puerto
Rico, 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. However, the
rating agency noted that the results for 2005 were solid, with Medicare
membership exceeding 130,000 members and net margins of approximately
5% anticipated. The rating agency added that given the current
Medicare reimbursement rates and market situation in Puerto Rico,
similar results are expected during 2006.
Commenting further, Moody's said that 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 noted that the 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 flow is used
for debt repayment, and that the companies maintain a consolidated
RBC of at least 50% of company action level. Moody's also
expects that there will be no significant changes to the financial covenants
contained in the secured bank credit facility and that all covenants will
be met or exceeded.
The rating agency stated that the ratings could move up if NAIC RBC increases
to 100% of company action level, debt to EBITDA falls below
2 times, Medicare membership grows in excess of 10% during
2006, and there is additional product or geographic diversification.
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 commented 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
While several competitors have entered the Medicare marketplace in Puerto
Rico in 2005, Moody's said that it expects that MMM Healthcare will
retain its dominant market position. 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 from
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 last rating action on MMM and NAMM was on January 10, 2006.
The following ratings were upgraded with a stable outlook:
MMM Holdings, Inc. -- senior secured debt rating
to B1 from B2; corporate family rating to B1 from B2;
NAMM Holdings, Inc. -- senior secured debt
rating to B1 from B2.
The following ratings were affirmed with a stable outlook:
MMM Healthcare, Inc. -- insurance financial
strength rating of Ba2;
PrimeCare Medical Network, Inc. -- insurance
financial strength rating of Ba2.
Aveta, Inc. is headquartered in Fort Lee, NJ.
As of September 30, 2005, Aveta (as Aveta Holdings,
LLC) reported members' equity of ($24.6) million and
123,771 Medicare members. For the nine month period ending
September 30, 2005 total revenue was $482 million.
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.
Moody's corporate family rating is an opinion of a corporate family's
ability to honor all of its financial obligations and is assigned to a
corporate family as if it had a single class of debt and a single consolidated
legal entity structure.
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