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Global Credit Research - 24 Nov 2010
Proposed amended $423 million senior secured credit facility rated
New York, November 24, 2010 -- Moody's Investors Service has assigned a B1 senior secured debt rating
to MMM Holdings, Inc.'s (MMM Holdings) and NAMM Holdings,
Inc.'s (NAMM Holdings) proposed shared $423 million
senior secured credit facility. At the close of the amendment,
it is estimated that the credit facility will consist of a $363
million term loan due in April 2015 and a five-year $60
million revolver. The proposed amendment would result in a projected
$100 million increase in the existing term loan, with the
net proceeds being used to pay a dividend to the group's stockholders,
as well as general corporate purposes. The rating agency also assigned
Ba1 insurance financial strength (IFS) ratings to two of the companies'
operating subsidiaries, MMM Healthcare, Inc. and PrimeCare
Medical Network, Inc. The outlook on the ratings is stable.
Moody's stated that under the credit facility agreement, MMM
Holdings and NAMM Holdings will continue to be equal co-borrowers.
The credit facility will have a guarantee from Aveta Inc. (Aveta,
unrated), the parent company of MMM Holdings and NAMM Holdings,
together with cross-guarantees between its unregulated subsidiaries.
The facilities will be secured with the pledge of the assets of Aveta,
as well as the pledge of stock of each of the borrowers and their subsidiaries
and all assets of the non-regulated entities.
The rating agency said that the B1 senior debt rating reflects Aveta's
leveraged capital structure, including the large amount of goodwill
on the balance sheet; high concentration in Puerto Rico; and
the company's dependence on Medicare Advantage (MA) products. Moody's
Senior Vice President, Steve Zaharuk, stated that, "The
major concern with MA business is the change in government reimbursement
levels under the healthcare reform act. It is not clear how current
MA members will respond to the resulting benefit and premium changes that
will likely result from the reduced reimbursement levels over the next
several years." However, the rating agency noted that
since 2011 reimbursements to managed care companies are being held level
with 2010, membership growth prospects look to be promising for
the current open enrollment period, especially for MMM in Puerto
Rico, where its margins provide the company with flexibility in
enhancing benefit offerings without raising premiums. The increased
net margins over the last several years reflect MMM's improved medical
management initiative, led by its development of exclusive independent
practice association (IPA) relationships.
The rating agency commented that while the amendment to the credit facility
would increase the amount of outstanding debt by $100 million to
approximately $363 million at year end 2010, the company's
leverage and coverage metrics remain relatively strong for the company's
rating level. At the increased debt level, the rating agency
expects the company's debt to EBIT ratio will remain below 1.5
times during 2011, with an earnings coverage ratio (EBIT/Interest
expense) above 6 times. While both metrics are better than expected
for the companies' ratings, the rating agency noted it projects
that proforma financial leverage (debt/capital, where debt includes
operating leases) would increase to above 60% during 2011,
which is at the high end of rating expectations.
Moody's said that if on a consolidated basis the group achieves net income
margins above 4%, demonstrates consistent annual Medicare
Advantage net membership growth of 3%, continues expansion
of its non-Puerto Rico operations and improves its NAIC risk-based
capital (RBC) ratio on a sustained basis of at least 125% of company
action level (CAL), then the ratings could be upgraded. However,
if annual net margins fall below 1%, if membership declines
in any year by 25% or more, if the RBC ratio declines below
50% CAL, or if there is a breach in any of the financial
covenants in its credit agreement, then the ratings could be downgraded.
The following ratings were assigned with a stable outlook:
MMM Holdings, Inc. -- senior secured debt rating
at B1, corporate family rating at B1;
NAMM Holdings, Inc. -- senior secured debt
rating at B1;
MMM Healthcare, Inc. -- insurance financial
strength rating at Ba1;
PrimeCare Medical Network, Inc. -- insurance
financial strength rating at Ba1.
Aveta Inc., the parent company of MMM Holdings and NAMM Holdings,
is a privately-owned company incorporated in Delaware and headquartered
in Fort Lee, New Jersey. As of September 30, 2010,
Aveta reported stockholders' equity of approximately $240 million
and approximately 224,000 Medicare members. For the first
nine months of 2010, total revenues were $1.8 billion.
The principal methodology used in this rating was Moody's Rating
Methodology for U.S. Health Insurers published in February
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
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.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
MD - Insurance
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 senior debt rating to MMM Holdings' credit facility
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