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Rating Action:

Moody's affirms Altegrity's B3 CFR; outlook raised to positive

14 Jul 2010

Approximately $2.1 billion in rated debt

New York, July 14, 2010 -- Moody's Investors Service today affirmed all existing ratings of Altegrity, Inc. ("Altegrity"), including the B3 Corporate Family Rating ("CFR"). At the same time, Moody's assigned a B1 rating to Altegrity's proposed $550 million term loan and a Caa2 rating to $210 million in proposed senior unsecured notes. The outlook was raised to positive from stable.

On June 6, 2010, Altegrity entered into a definitive agreement to acquire Kroll, Inc., a subsidiary of Marsh & McLennan Companies, Inc. (Baa2, stable), at a transaction valued at $1.13 billion plus fees and expenses. The acquisition is being financed by a new $550 million term loan, $210 million of privately placed senior unsecured notes, and approximately $450 million of new capital from the financial sponsor (Providence Equity Partners) consisting of $400 million in equity and $50 million of zero coupon junior subordinated notes. The transaction is anticipated to close in the third quarter.

Moody's views the proposed transaction favorably as the large equity infusion reduces financial leverage by about 1.5 turns and materially improves cushion under financial covenants, which had become tight. The acquisition enhances the combined company's product diversity through the addition of Kroll's Ontrack brand for electronic data discovery and reduces Altegrity's reliance on Office of Personnel Management ("OPM") contracts. Additionally, potential synergies and scale may be realized in the screening and consulting segments, which are complementary businesses.

While the Kroll acquisition is substantially larger than any of Altegrity's previous acquisitions and inherent integration risks exist in a transaction of this size, Moody's views such risks to be partially mitigated by the familiarity of Altegrity's management team with the Kroll business.

Nonetheless, Altegrity's B3 CFR continues to be constrained by high financial leverage, minimal external liquidity, and the upcoming maturity of the OPM contracts. Pro forma for the transaction and reflecting Moody's standard adjustments, financial leverage is estimated at 6.8 times as of March 31, 2010 and is not expected to fall below 6 times in the near term. Altegrity's existing $90 million revolver has just $2 million available after consideration of letters of credit and is not being upsized as part of the transaction. However, liquidity is expected to be supported by modest cash flow generation over the next several quarters and a post-transaction cash balance of about $75 million. Altegrity's contracts with the OPM are scheduled to expire in 2011 and represent about 27% of the combined company's pro forma revenues. While Altegrity is reportedly the largest external provider of background investigative services to the US government and has long standing relationships with the OPM, both pricing and volumes could come under pressure through the recompete process.

The positive outlook reflects the potential for earnings growth if the Kroll acquisition is successfully integrated and anticipated synergies are realized. Additionally, an improvement in macroeconomic conditions, such as employment trends and merger and acquisition activity, could lead to a rebound in demand for commercial pre-employment screening services and consulting services.

Moody's assigned the following ratings to the proposed new instruments:

$550 million first lien term loan due 2015, B1 (LGD3, 31%)

$210 million senior unsecured notes due 2015, Caa2 (LGD5, 81%)

Moody's affirmed the following ratings:

Corporate Family Rating, B3

Probability of Default Rating, B3

$90 million first lien revolver due 2013, B1 (LGD3, 31%)

$806 million first lien term loans due 2015

$290 million senior unsecured notes due 2015, Caa2 (LGD5, 81%)

$150 million senior subordinated notes due 2016, Caa2 (LGD6, 94%)

The ratings are subject to the conclusion of the proposed transaction and Moody's review of final documentation.

The previous rating action on Altegrity occurred on January 5, 2009 when Moody's affirmed the ratings. The last issuer comment was released on June 8, 2010 after Altegrity's announcement of the Kroll acquisition.

The principal methodology used in rating Altegrity was Moody's Global Business & Consumer Service Industry, published in August 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Altegrity, Inc is a global screening and security solutions company headquartered in Falls Church, Virginia. Kroll, Inc. is a leading risk consulting company based in New York. On a pro forma basis, revenue for the twelve months ended March 31, 2010 was approximately $1.5 billion.

New York
Suzanne Wingo
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Altegrity's B3 CFR; outlook raised to positive
No Related Data.
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