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Rating Action:

Moody's assigns Belfor a Ba3 CFR

Global Credit Research - 18 Mar 2011

Approximately $460 million of rated debt affected

New York, March 18, 2011 -- Moody's Investors Service has assigned Belfor Holdings, Inc. first time ratings: Ba3 corporate family and B1 probability of default. Concurrently, a Ba2 rating has been assigned the planned $460 million first lien bank credit facility. The rating outlook is stable. The planned facility will replace existing bank debt with minimal impact to cash and debt balances.

Ratings assigned, subject to review of final documentation:

Belfor Holdings, Inc.

Corporate family, Ba3

Probability of default, B1

Belfor USA Group, Inc.

$125 million first lien revolver due 2016, Ba2 LGD2, 24%

$75 million first lien term loan A due 2016, Ba2 LGD2, 24%

$260 million first lien term loan B due 2017, Ba2 LGD2, 24%

RATINGS RATIONALE

The Ba3 CFR considers the company's experience, operating efficiency and scale in the highly fragmented disaster recovery services niche (reconstruction services related to insurance losses). Belfor is large, geographically diverse and offers a wide range of services. Scale and service breadth offer a competitive edge when dealing with larger disasters because the company can mobilize specialized workers, reconstruct damaged property quickly, thereby limiting business interruption insurance outlays. We expect that the company's scale will continue to attract larger customers such as national retailers, property owners or insurance companies, and grow market share; we anticipate organic revenues growing annually in the low to mid single digit percentage range. The rating acknowledges that large natural disasters or other loss events could lead to occasional spikes in revenues and cash flows.

We believe that the company's operational efficiencies have heavily stemmed from its small and effective executive team (Belfor's majority owners) who drive an operating culture that would probably be hard to sustain without their presence. Therefore, the rating considers elevated key-person risk.

The rating envisions credit metrics remaining within the Ba3 rating range, as described in Moody's Global Business & Consumer Service Industry Rating Methodology. A focus on acquisitive growth and a financial policy whereby a material portion of the company's earnings are paid out in dividends constrains prospects for metric improvement.

Liquidity profile adequacy also supports the rating. Operating cash flow should cover scheduled debt maturities, dividends, earn-out payments and capital spending. Good beginning financial ratio covenant test headroom is a key support to the profile. We anticipate that the $125 million revolver's beginning availability level will not be large juxtaposed to the company's +$1 billion revenue base, which constrains the profile's robustness.

Upward rating momentum would depend on expectation of debt to EBITDA materially improving and being sustained at improved levels. Downward rating momentum would depend on material weakening of metrics and/or a weakening liquidity profile.

Pursuant to Moody's Loss Given Default Methodology, and considering Belfor's all first lien bank debt structure, a 65% recovery of estimated liability claims were assumed in a stress scenario, which drove the B1 probability of default rating, versus the Ba3 corporate family rating.

The principal methodologies used in this rating were Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Through its subsidiaries Belfor Holdings, Inc. is a global damage recovery and restoration provider, offering its services to insurance companies, insurance intermediaries, industrial, commercial and residential customers. Estimated 2010 revenues were over $1 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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.

New York
Bruce Herskovics
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's assigns Belfor a Ba3 CFR
No Related Data.
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