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Related Issuers
Rating Action:

Moody's affirms NCCI Holdings, Inc., FL's A2; outlook stable

18 Dec 2013

No rated debt for membership corporation

New York, December 18, 2013 -- Moody's Investors Service has affirmed the A2 issuer rating assigned to NCCI Holdings, Inc. ("NCCI"). The rating outlook is stable. The organization has no outstanding rated debt, but has $40 million of unrated debt. The affirmation of the rating is based on NCCI's strong market position and consistently positive operating performance offset by thin liquidity and debt structure risks.

SUMMARY RATING RATIONALE

The A2 issuer level rating reflects NCCI's unrivaled market position, consistent operating surpluses driven by a diverse customer base and products, a stable cost structure and management's fiscal discipline to adjust expenses in line with revenues. NCCI's niche as a data collection bureau of workers compensation information has offsetting strengths and challenges as its specialization makes it a leading provider in the market, but increases exposure to cyclicality in the workers compensation insurance sector. Credit challenges for NCCI include thin liquidity, as well as growing pension and post retirement health liabilities. A recent debt restructuring has reduced related risks, but the new structure still includes bullet maturities, cross-default provisions and financial covenants.

STRENGTHS

*NCCI has a dominant market position as a provider of workers compensation and employee injury data and statistics for a large variety of private and governmental constituents, including insurance companies and state governments. NCCI's key market strength is its comprehensive database of historical claims that would be difficult to replicate for competitive purposes.

*Management's close oversight and conservative budgeting have produced consistently positive operating results (three-year average operating margin was 2.8% ending FY 2012 and 12.2% FY 2012 cash flow margin) and we expect stronger performance in FY 2013 based on third quarter results.

*Diversified revenues helps insulate the organization from revenue volatility. Approximately 50% is premium-based, which is dependent on fluctuations in premiums; 35% is transaction-based, which is susceptible to structural changes of the workers compensation industry; and 15% from residual markets.

*In conjunction with the refinancing, NCCI paid down $15 million of total debt, and there are no plans for additional debt as NCCI funds its capital needs from operating cash flow. Operating leverage is manageable with pro-forma debt to revenues of 0.25 times.

*The real estate market value of its headquarters building was appraised at $69.0 million (as of October 16, 2012). Located in Boca Raton, Florida, this value is not reflected in Moody's financial resource calculations that exclude plant equity. While NCCI has no plans to sell the building, it could potentially tap this real estate asset if necessary.

CHALLENGES

*NCCI's debt structure has interest rate, refinancing and liquidity risks as the debt portfolio contains variable rate bank debt, non-amortizing debt, financial covenants and certain events of default which could accelerate all debt. In addition, the $20 million of variable rate debt matures in five years.

*Operating in a niche market increases NCCI's exposure to changes or volatility in the workers compensation insurance sector.

*NCCI has thin net assets depressed by accrued pension and post-retirement health liabilities ($30 million expendable financial resources in FY 2012) and the defined benefit plan remains open to new employees. Expendable financial resources cover pro-forma debt and operations 0.38 times and 0.10 times, respectively.

*Data integrity and security present key risks as NCCI's main product is its large database of workers compensation insurance information.

OUTLOOK

The stable outlook is based on Moody's view that NCCI will continue to generate positive cash flow margins, maintain financial resources and does not have plans for additional debt.

WHAT COULD MAKE THE RATING GO UP

The primary factors that could lead to a rating upgrade would be substantial growth in cash and investments and reduced leverage.

WHAT COULD MAKE THE RATING GO DOWN

Deterioration in cash and investments leading to increased leverage, decline in operating performance, reduced liquidity or significant change in the workers compensation insurance industry or emergence of viable competitors could lead to a rating downgrade.

METHODOLOGY

The issuer-level rating on NCCI Holdings, Inc.'s bonds was assigned by evaluating factors believed to be relevant to the credit profile of NCCI such as 1) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and vii) the issuer's management and governance structure related to payment.

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 rating action on the support provider and in relation to each particular 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.

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.

Erin Veronica Ortiz
Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Dennis M. Gephardt
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's affirms NCCI Holdings, Inc., FL's A2; outlook stable
No Related Data.
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