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Rating Action:

Moody's assigns a B3 CFR to Mitchell International, Inc.

Global Credit Research - 20 Sep 2013

$785 million of debt affected

New York, September 20, 2013 -- Moody's Investors Service assigned new ratings to automotive-damage-claims processor Mitchell International, Inc., including B3 Corporate Family Rating (CFR) , B3-PD Probability of Default Rating, B1 to the proposed $540 million first lien credit facility, and Caa2 to the proposed $245 million second lien term loan. Proceeds from the debt, along with approximately $450 million in equity, will be used to finance the $1.13 billion acquisition of Mitchell by Kohlberg Kravis Roberts & Co. The outlook is stable.

Ratings Rationale

"The B3 CFR takes into account the releveraging of Mitchell to about 9.0x (including Moody's standard adjustments), after the company had been steadily deleveraging over the past several years, to as low as 4.6x as of June 2013," noted Kevin Stuebe, Senior Analyst at Moody's Investors Service. Although Mitchell has a relatively small, approximately $360 million revenue base, it maintains leading positions in the U.S. auto physical claims (APD) and casualty solutions markets. Customer contracts, along with data and software that are embedded in client processes, provide recurring and predictable revenue and cash flows.

Moody's expects the company to continue its solid growth trend in revenues, although not at past rates, which have averaged better than a 12% CAGR over the last five years. Importantly, this growth has been complemented by steady, approximately 250 basis-point growth in Mitchell's operating margins over the same period. Simultaneously, the company has diversified its product offering to being nearly evenly split between the auto-casualty and workers'-comp medical-bill-review space, its faster-growing segment, and the APD valuation and claims-processing segment, Mitchell's traditional core.

The expectations of ongoing revenue growth and some margin improvement lead us to anticipate steady deleveraging, although at a slower rate than in the recent past. Moody's expects leverage to moderate to below 8.5x by the end of 2014, and at least a full turn lower a year later.

Moody's stable outlook anticipates mid-single-digit revenue growth and moderately improving margins over the next twelve to 18 months, as well as meaningful deleveraging to maintain the B3 CFR. The ratings could be upgraded with more robust improvement in the company's top line and leverage metrics. Conversely, the ratings could be downgraded if lower than expected top-line growth or any deterioration in margins hampers cash flow such that Mitchell is unable to deleverage steadily as anticipated.

Ratings (and Loss Given Default Assessments) assigned:

Issuer: Mitchell International, Inc.

Corporate Family Rating, B3

Probability of Default Rating, B3-PD

Proposed revolving credit facility due 2018 B1 (LGD3, 32%)

Proposed 1st lien term loan due 2020 B1 (LGD3, 32%)

Proposed Second lien term loan due 2021 Caa2 (LGD5, 85%)

Outlook: Stable

Mitchell International is a leading provider of data, software, and services to support the estimating, adjudication, and processing of auto physical damage, auto bodily injury claims, and workers' compensation claims. Anticipated revenues in 2013 are approximately $360 million. The company was sold, in late 2013, to private equity sponsor KKR.

The principal methodology used in this rating was Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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.

Kevin Stuebe
Vice President - Senior Analyst
Corporate 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

Robert P Jankowitz
Associate Managing Director
Corporate 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 assigns a B3 CFR to Mitchell International, Inc.
No Related Data.

 

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