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Rating Action:

Moody's Upgrades AssetMark to Ba2

06 Aug 2019

New York, August 06, 2019 -- Moody's Investors Service (Moody's) today upgraded AssetMark Financial Holdings, Inc.'s (AssetMark) corporate family rating (CFR) and backed senior secured bank credit facility rating to Ba2 from B1. The outlook is stable. This concludes Moody's review initiated on 9 July 2019.

Moody's has taken the following rating actions:

..Issuer: AssetMark Financial Holdings, Inc.

.... Corporate Family Rating, Upgraded to Ba2 from B1

....Gtd. Senior Secured 1st Lien Revolving Credit Facility, Upgraded to Ba2 from B1

....Gtd. Senior Secured 1st Lien Term Loan, Upgraded to Ba2 from B1

Outlook Actions:

..Issuer: AssetMark Financial Holdings, Inc.

....Outlook, Changed To Stable from Rating Under Review

RATINGS RATIONALE

Moody's said AssetMark's credit profile has improved following its successful completion of its initial public offering (IPO) and subsequent prepayment of $125 million out of its outstanding $250 million senior secured term loan. In funding the prepayment of half of its loan, AssetMark has used the proceeds of its IPO as well as cash on hand. Moody's said that with this pay down, AssetMark's 2018 Moody's-adjusted proforma debt leverage has improved to around 1.6x compared to 3.0x as of year-end 2018.

Moody's said the probability of support from AssetMark's ultimate parent company Huatai Securities Co., Ltd. (Huatai, Baa2 stable), which owns approximately 70% of AssetMark, has increased following the IPO and AssetMark's resultant higher profile within the US financial services sector. AssetMark's ratings now receive one notch of uplift to reflect this increased likelihood of parental support.

AssetMark was acquired by Huatai in October 2016. As part of the acquisition, AssetMark's debt at the time was paid down, but in late 2018 AssetMark issued its $250 million senior secured term loan to pay a dividend to Huatai, a credit negative. Moody's said AssetMark has not disclosed debt leverage targets or related plans for the development of its capital structure, particularly around its tolerance for using debt to help fund M&A activities, and that its immature financial policy framework is a source of credit risk.

Moody's said the IPO provides AssetMark with a currency to fund potential acquisitions, giving it added creditor-friendly financial flexibility. This flexibility may become important since AssetMark has been an active participant in the ongoing consolidation of the competitive and rapidly changing brokerage landscape, said Moody's.

Moody's said that AssetMark's credit strengths include its strong cash flow generation as well as its scalable business model, benefiting from industry trends favoring the investment outsourcing sector. Moody's added that a credit challenge for AssetMark is that its business model has been growing during a period of benign market conditions and hasn't been tested in prolonged periods of declining markets or during a recession. Relative to rated peers in the independent broker-dealer sector, AssetMark's revenue is heavily reliant on asset-based fees. Moody's said that in 2018, around 93% of AssetMark's revenue was directly tied to the level of client assets which could fluctuate with the movement in broad equities markets, leaving the firm susceptible to market declines.

What Could Change the Rating -- Up

The development of profitable new revenue streams resulting in increased revenue diversification.

Organic increase in profitability and margin stability driven by sustainable growth in assets under management.

An increase in Moody's assessment of the probability of parental support or an improvement of the parent's creditworthiness.

What Could Change the Rating -- Down

The adoption of an aggressive financial policy stemming from significant increase in debt-funded dividends or M&A activities, especially if not supplemented by a clear near-term deleveraging strategy.

Increasing competitive pressures within the turnkey asset management platform business resulting in significant asset redemptions and reduced revenues.

Increase in asset risk emanating from the firm's yield generating-strategies.

Compliance or risk management shortcomings in meeting the firm's evolving business needs.

A decrease in Moody's assessment of the probability of parental support or a worsening of the parent's creditworthiness.

The principal methodology used in these ratings was Securities Industry Service Providers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Fadi Abdel Massih
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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