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Rating Action:

Moody’s affirms Hyperion Insurance Group Limited’s B2 corporate family rating; stable outlook

15 October 2020


London , October 15, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the B2 corporate family rating of Hyperion Insurance Group Limited (HIG) and the probability of default rating at B2-PD. Concurrently, Moody's has affirmed the B2 ratings on the guaranteed senior secured term loans issued by Hyperion Refinance S.a.r.l. (Hyperion Refinance) and HIG Finance 2 Limited. Moody's has also assigned B2 ratings to the new £475 million equivalent (raised in USD) guaranteed senior secured term loan facility being issued by Hyperion Refinance, and the £125 million guaranteed senior secured revolving credit facility being extended to September 2024 by HIG. The outlooks on all issuers are stable.

The action follows HIG's announcement on 23 September 2020 of the proposed acquisition of A-Plan Group (APG), a UK based insurance broker. HIG expects to fund the acquisition with a combination of debt and new equity. The transaction remains subject to regulatory approval.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

The rating affirmation reflects Moody's view that the acquisition of APG will improve HIG's business profile through increased scale and greater business diversification. The combined group will have a leading position in the UK, and will continue to grow its international presence both organically and through further acquisitions. Moody's views APG's product offerings and distribution capabilities as complementary to HIG's existing business, a credit positive.

As part of the transaction, HgCapital, APG's previous private equity owner, will make an initial £400 million equity investment in HIG, followed by an additional £100 million, and will become a long-term investor alongside HIG's existing shareholders. HgCapital is committed to further investing in HIG, a credit positive. The group's liquidity position will also improve, supported by £377 million (pro-forma as at end of August) of unrestricted and locked account cash and full availability under the £125 million revolving credit facility.

Notwithstanding these benefits, Moody's estimates that the proposed transaction will increase HIG's pro forma debt-to-EBITDA ratio to approximately 7x, which is high for the company's rating category. Moody's expects the group to reduce its leverage in the next 12-18 months to not more than 6.5x. These metrics incorporate Moody's adjustments for operating leases, deferred considerations, certain non-recurring costs, run-rate earnings from acquisitions, and benefits of HIG's locked cash account. The locked account can only be accessed to fund future acquisitions, fund new hires, purchase minority interests, pay deferred consideration obligations or repay credit facilities.

Moody's expects that HIG's revenue and EBITDA will continue to increase, albeit at a slower pace compared to recent years, and will facilitate deleveraging. However, a material deterioration in the group's profitability or a failure to reduce financial leverage could result in negative rating action.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade of HIG's ratings include: (i) EBITDA coverage of interest consistently exceeding 3.0x; (ii) free-cash-flow-to-debt ratio consistently exceeding 6%; and (iii) debt-to-EBITDA ratio consistently below 5.5x.

Factors that could lead to a rating downgrade include: (i) EBITDA coverage of interest consistently below 1.5x; (ii) free-cash-flow-to-debt ratio remaining below 3% for the foreseeable future; and/or (iii) debt-to-EBITDA ratio remaining consistently above 6.5x.

OUTLOOK AND FACILITY RATINGS

The rating outlook is stable and reflects Moody's expectation that, notwithstanding the material increase in borrowings, HIG will gradually reduce its financial leverage through EBITDA growth and further payments of outstanding deferred consideration obligations related to recent acquisitions.

LIST OF AFFECTED RATINGS

Issuer: Hyperion Insurance Group Limited

..Affirmations:

....Long-term Corporate Family Rating, affirmed B2

....Probability of Default Rating, affirmed B2-PD

£125 million Backed Senior Secured Revolving Credit Facility, affirmed B2 (rating to be withdrawn at closing)

...Outlook Action:

....Outlook remains Stable

Assignment:

£125 million Backed Senior Secured Revolving Credit Facility, assigned B2

Hyperion Refinance S.a.r.l.

..Affirmation:

$1,200 million Backed Senior Secured Term Loan Facility, affirmed B2

..Outlook Action:

....Outlook remains Stable

Assignment:

£475 million equivalent Backed Senior Secured Term Loan Facility, assigned B2

HIG Finance 2 Limited

..Affirmation:

€250 million Backed Senior Secured Term Loan Facility, affirmed B2

..Outlook Action:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Insurance Brokers and Service Companies published in June 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121967 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

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.

Marina Cremonese
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Simon James Robin Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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