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03 Oct 2007
Moody's affirms PMA Capital following acquisition of Midlands
New York, October 03, 2007 -- Moody's Investors Service has affirmed the ratings on PMA Capital Corporation
(NASDAQ: PMACA) and its subsidiaries following the announcement
that the company has acquired Midlands Management Corporation ("Midlands")
and, separately, that it expects to solicit consents from
its convertible note holders to permit more flexibility with respect to
common share repurchases. The following ratings have been affirmed
with a stable outlook: senior debt rating of PMACA at Ba3,
the insurance financial strength ratings of the members of the PMA Insurance
Group companies (PMAIG) at Baa3, and the insurance financial strength
rating of PMA Capital Insurance Company (PMA Re) at B1.
Midlands is an Oklahoma City-based managing general agent,
program administrator and provider of Third Party Administrator ("TPA")
services. The company generates fee income and does not take any
insurance risk. Midlands is expected to complement PMA's
existing TPA services (PMA Management Corp.) with little overlap
in the two businesses. Under the terms of the transaction,
PMA paid $19.8 million in cash at closing, with the
total purchase price of $22.8 million to $44.5
million to be paid over the next four years, based on achievement
by Midlands of specified EBITDA growth levels.
Moody's expects the transaction to have little impact on the credit
profile of PMACA or its subsidiaries in the medium term. The initial
purchase payment of $19.8 million has been funded from cash
at the unregulated subsidiaries. Liquidity at the holding company
and unregulated subsidiaries is still expected to finish the year above
the $18 million balance at year end 2006 (primarily because of
a $37.5 million dividend received from PMA Re in April 2007).
However, the transaction is expected to generate very little cash
benefit to debt holders for the next four years. In terms of business
strategy, PMA hopes to cross-sell PMA Management Corp.'s
TPA services to Midlands' clients but has no aspirations to insure
the excess workers' comp business that Midlands underwrites.
The company expects to solicit consents from convertible note holders
to change certain provisions under the current indenture that limit share
repurchases to $10 million. As a condition of approving
the $37.5 million PMA Re dividend in April, Pennsylvania
insurance regulators have restricted the use of those funds for share
repurchases to $15 million. As of September 15, 2007,
the company has repurchased $8.6 million of common stock,
out of the $10 million authorized by the board of directors in
May. Moody's expects the company to manage its future share
buyback programs prudently and in line with dividends received from PMA
The last rating action occurred on December 21, 2006 when Moody's
upgraded the senior debt rating of PMA Capital Corporation to Ba3 from
B3 and the insurance financial strength ratings of the PMA Insurance Group
companies (PMAIG) to Baa3 from Ba1.
PMA Capital Corporation, headquartered in Philadelphia, Pennsylvania,
is an insurance holding company whose operating subsidiaries provide specialty
risk management products and services, particularly workers' compensation
insurance, to customers in the United States. As of June
30, 2007, shareholders' equity was $411 million.
Midlands Management Corporation ("Midlands"), based
in Oklahoma City, is a managing general agent that underwrites excess
workers' compensation insurance and other specialty coverages on
behalf of insurers and is also a provider of third-party claims
administration services for self-insured companies and insurers.
Commissions from its non-risk bearing underwriting activities account
for roughly 60% of total revenues while fees from its third-party
administration activities account for the balance. In 2006,
Midlands generated roughly $30 million in revenues.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
and obligations. For more information, visit our website
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
No Related Data.
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