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22 Dec 2010
Approximately $162 million of credit facilities affected
New York, December 22, 2010 -- Moody's Investors Service has affirmed the ratings of Arrowhead General
Insurance Agency, Inc. (Arrowhead -- corporate family
rating of B3), reflecting the company's expertise in distributing
specialty property and casualty (P&C) insurance products, its
strong carrier relationships and its consistent operating margins.
These strengths are tempered by the company's significant debt burden
and restrictive financial covenants as well as its modest size relative
to the largest national brokers. The rating outlook remains stable.
"Arrowhead has returned to organic growth in revenues and EBITDA during
2010 following various restructuring actions taken in 2009,"
said Bruce Ballentine, Moody's lead analyst for Arrowhead.
"The favorable trend in EBITDA should help the company to renegotiate
or refinance its maturing credit facilities."
As of September 30, 2010, Arrowhead's financing arrangement
consisted of a $10 million first-lien revolver maturing
in August 2011 (undrawn, rated B3), a $110 million
first-lien term loan due in September 2012 (rated B3) and a $41
million second-lien term loan due in February 2013 (rated Caa1).
Moody's expects the company to complete a refinancing during the
first half of 2011.
Arrowhead benefits from its established position as a general agent and
program specialist along with its healthy profit margins, said Moody's.
The rating agency noted that Arrowhead's business is somewhat concentrated
among its largest insurance carriers, leaving the company exposed
to potential financial problems of a leading carrier or to a carrier's
withdrawal from a target line of business. Arrowhead mitigates
this risk by having alternative carriers involved in some of its major
programs. Arrowhead is also exposed to errors and omissions --
a risk inherent in professional services.
Moody's cited the following factors that could lead to an upgrade of Arrowhead's
ratings: (i) adjusted (EBITDA - capex) coverage of interest
exceeding 2.5x, (ii) adjusted free-cash-flow-to-debt
ratio exceeding 5%, and (iii) adjusted debt-to-EBITDA
ratio below 5x.
Moody's cited the following factors that could lead to a downgrade of
the company's ratings: (i) failure to refinance the credit facilities
comfortably ahead of their maturities, (ii) adjusted (EBITDA -
capex) coverage of interest below 1.5x, (iii) adjusted debt-to-EBITDA
ratio above 6.5x, or (iv) loss of a major carrier relationship
or comparable disruption to a key insurance program.
Arrowhead, based in San Diego, California, is a US general
agency and program manager, providing product development,
marketing, underwriting and administrative services to national
insurance carriers. Arrowhead develops specialized insurance products
in cooperation with major carriers and distributes those products through
a network of retail and wholesale brokers. Arrowhead generated
total revenues of $74 million and net income of $0.6
million for the first nine months of 2010. Shareholders' equity
was $51 million as of September 30, 2010.
The principal methodology used in this rating was Moody's Global Rating
Methodology for Insurance Brokers & Service Companies, published
in January 2008.
Please see the ratings tab on the Arrowhead page on Moodys.com
for the last rating action and the rating history.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
MD - Insurance
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Arrowhead's ratings (CFR at B3), outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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