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Rating Action:

Moody’s affirms Acrisure's B3 corporate family rating upon launch of note issuance; maintains negative outlook

16 July 2019

Assigns Caa2 rating to $300 million issuance of seven-year senior unsecured notes; total credit facilities and notes increasing to over $4.6 billion

New York , July 16, 2019 – Moody's Investors Service has affirmed the B3 corporate family rating and B3-PD probability of default rating of Acrisure, LLC, and has assigned a Caa2 rating to the company's $300 million issuance of seven-year senior unsecured notes. The notes are being offered to qualified US institutional buyers under Rule 144A of the Securities Act of 1933 and to certain non-US persons under Regulation S. The company intends to use net proceeds of the offering to help fund acquisitions and pay related fees and expenses. In the same action, Moody's affirmed the B2 ratings on Acrisure's senior secured credit facilities and notes and the Caa2 rating on its existing senior unsecured notes (see list below). Moody's maintains a negative rating outlook on Acrisure.

RATINGS RATIONALE

Acrisure's ratings reflect its growing market presence in US insurance brokerage and its recent international expansion, its good mix of business across property & casualty insurance and employee benefits, and its healthy EBITDA margins, according to Moody's. As an active acquirer, Acrisure maintains the existing brands of its acquired entities and allows them to operate fairly autonomously, while centralizing accounting, compliance and other business tracking systems. Acrisure aligns the interests of its many acquired entities by including significant equity in its purchase consideration. Acrisure Management and Agency Partners own more than 80% of the firm's equity.

Offsetting these strengths are the company's large number and dollar volume of acquisitions, its rising debt burden and its persistently high financial leverage. The rapid acquisition pace heightens the management challenges of integrating critical systems, and limiting the firm's exposure to errors and omissions in its delivery of products and services. The company also has large contingent earnout liabilities, which it typically funds through a combination of operating cash flow and incremental borrowings.

Acrisure generated organic revenue growth in the low single digits in 2018 and Q1 2019, while maintaining healthy EBITDA margins. The company continued its high pace of acquisitions funded primarily by increased borrowings and partly by preferred equity.

Moody's estimates that Acrisure's pro forma debt-to-EBITDA ratio will be at or slightly above 7.5x after giving effect to the proposed incremental borrowing along with run-rate EBITDA from acquisitions funded by the borrowing. Pro forma (EBITDA - capex) interest coverage will be in the range of 1.5x-2x, and free cash flow will be close to zero. The rating affirmation incorporates Moody's expectation that Acrisure will generate positive free cash flow after contingent earnout payments and scheduled debt amortization by H1 2020. Continued negative free cash flow after deducting these payments could lead to a downgrade of the company's ratings.

Given the negative rating outlook, an upgrade of Acrisure's ratings is unlikely in the near future. Factors that could lead to a stable outlook include: (i) debt-to-EBITDA ratio below 7.5x; (ii) (EBITDA - capex) coverage of interest consistently above 1.2x; (iii) free-cash-flow-to-debt ratio above 2%, and positive free cash flow after contingent earnout payments and scheduled debt amortization; and (iv) declining proportion of revenue and earnings from newly acquired versus existing business.

Factors that could lead to a rating downgrade include: (i) debt-to-EBITDA ratio above 7.5x; (ii) (EBITDA - capex) coverage of interest below 1.2x; (iii) free-cash-flow-to-debt ratio remaining below 2%, or continued negative free cash flow after contingent earnout payments and scheduled debt amortization, through H1 2020; or (iv) disruptions to existing or newly acquired operations.

Moody's has affirmed the following ratings (with loss given default (LGD) assessments) of Acrisure, LLC:

Corporate family rating at B3;

Probability of default rating at B3-PD;

$235 million senior secured revolving credit facility (undrawn at March 31, 2019) maturing in November 2021 at B2 (LGD3);

$2.5 billion ($2.4 billion outstanding) senior secured term loan maturing in November 2023 at B2 (LGD3);

$750 million senior secured notes maturing in February 2024 at B2 (LGD3);

$925 million senior unsecured notes maturing in November 2025 at Caa2 (LGD5).

Moody's has assigned the following rating (with LGD assessment) to Acrisure, LLC:

$300 million seven-year senior unsecured notes at Caa2 (LGD5).

Acrisure Finance, Inc. is a co-issuer of the senior unsecured and senior secured notes.

The rating outlook for Acrisure is negative.

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

Based in Grand Rapids, Michigan, Acrisure distributes a range of property & casualty insurance, employee benefits and related products to small and midsize businesses through offices in a majority of US states and through recently acquired operations in the UK, Switzerland and Bermuda. The company generated revenue of $1.3 billion for the 12 months through March 2019.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Bruce Ballentine
VP-Sr Credit Officer
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

Sarah Hibler
Associate Managing Director
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

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