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Global Credit Research - 11 May 2010
Approximately $660 million of credit facilities rated.
New York, May 11, 2010 -- Moody's Investors Service has assigned a B2 corporate family rating to
Sedgwick Holdings, Inc. ("Sedgwick"), a
holding company for Sedgwick Claims Management Services, Inc.
The rating agency also assigned ratings to the credit facility to be issued
in connection with the proposed acquisition of Sedgwick by Stone Point
Capital LLC and Hellman & Friedman LLC, together with management
and employees for approximately $1.1 billion. Sedgwick
is currently owned by Fidelity National Financial, UnitedHealth
Group, Thomas H. Lee Partners, L.P. and
Evercore Capital Partners. The transaction is expected to close
in the second quarter of 2010, subject to closing conditions and
the receipt of regulatory approvals.
The proposed financing arrangement includes a $400 million first
lien term loan and $60 million revolving credit facility (expected
to be undrawn at closing), both rated B1, and a $200
million second lien term loan (rated B3), all to be issued by Sedgwick
Holdings, Inc. Net proceeds will be used to repay existing
debt of about $391 million and $88 million of preferred
equity, to help fund the acquisition and to pay related fees and
expenses. The rating outlook for Sedgwick is stable.
Upon closing of the transaction, Moody's expects to affirm
and withdraw the B1 corporate family rating on the prior holding company
(Sedgwick CMS Holdings, Inc.). Moody's also
expects to withdraw the B1 ratings from Sedgwick CMS Holdings, Inc.'s
old senior secured credit facilities, as these facilities will be
repaid and terminated.
Sedgwick's ratings reflect the company's substantial financial leverage,
which is expected to increase under the new ownership structure,
leading to a low level of financial flexibility and somewhat weak interest
and fixed charge coverage. In addition, some uncertainty
exists regarding Sedgwick's long term capital targets given the company's
ownership by private equity firms who tend to favor high levels of debt
in the capital structure. An additional challenge for the company
is its fairly ambitious long term growth plan, which may be difficult
to achieve given generally flat to declining claim frequency trends in
Helping to offset these risks is Sedgwick's status as a market leader
in the claims management sector, its diverse customer base,
product line and geographic spread and its strong historic organic revenue
growth. As a service provider to insurance companies and self-insured
entities, Sedgwick also benefits from a fairly stable earnings profile,
due to the relatively high switching costs faced by customers, a
stable cost structure, and the lack of exposure to insurance underwriting
Moody's cited the following factors that could lead to a rating upgrade
for Sedgwick: (i) a long term commitment to lower financial leverage
(i.e .debt-to-EBITDA below 4.5x),
(ii) free cash flow-to-debt of 6% or better,
and (iii) interest coverage of 3x or better. Conversely,
the following factors that could lead to a downgrade: (i) debt-to-EBITDA
ratio over 6.5x, (ii) free cash flow-to-debt
of 3% or less, or (iii) interest coverage below 1.5x.
Moody's last rating action on Sedgwick took place on January 27,
2010, when the rating agency affirmed the B1 rating on the senior
secured credit facility of Sedgwick CMS Holdings, Inc. and
the B1 corporate family rating.
Sedgwick is one of the largest claims service providers in the United
States. The company processes claims for a wide range of insurance
product lines including workers' compensation, general liability,
and disability insurance. For 2009, the company generated
revenues of $703 million.
The principal methodology used in rating Sedgwick was Moody's Global Rating
Methodology for Insurance Brokers & Service Companies, published
in January 2008 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
For more information, please visit our website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Moody's assigns B2 corporate family rating to Sedgwick Holdings
Financial Institutions Group
Moody's Investors Service
No Related Data.
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