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Rating Action:

Moody's downgrades Asurion ratings following recap announcement

20 Feb 2014

$7 billion in total debt; corporate family rating downgraded to B1, first-lien debt to Ba3

New York, February 20, 2014 -- Moody's Investors Service has downgraded the corporate family rating and probability of default rating of Lonestar Intermediate Super Holdings, LLC (Lonestar), a wholly owned subsidiary of NEWAsurion Corporation (NEWAsurion) to B1 from Ba3 following Asurion's announcement that it intends increase its total debt as part of a dividend recapitalization. Moody's also assigned a new B1 corporate family rating and a B1-PD probability of default rating to Asurion, LLC (Asurion), which will be the primary issuer of debt going forward. The rating outlook for Asurion is stable.

The rating agency also assigned ratings to the credit facilities to be issued in connection with the company's proposed $2.25 billion recapitalization and downgraded Asurion's existing $4.8 billion first-lien credit facilities to Ba3 from Ba2. Proceeds from the recapitalization will be used to pay a $1.7 billion dividend to shareholders and repay Lonestar's $1 billion senior unsecured term loan. The Lonestar ratings will be withdrawn upon closing of the transaction.

RATINGS RATIONALE

"The downgrade of Asurion's ratings reflect the substantial increase in financial leverage, combined with slowing domestic growth prospects given a maturing market for its primary handset protection products," said Paul Bauer, Moody's lead analyst for Asurion. "However, international growth opportunities remain strong and the company's credit profile continues to be supported by a strong market presence and consistent EBITDA margins."

NEWAsurion's business profile encompasses both wireless handset protection (Asurion) and extended service contracts (NEW). Asurion has a dominant position in handset protection distributed through wireless carriers in the US and a growing presence in selected international markets. NEW has a good position in the US market for extended service contracts. The group as a whole has a record of efficient operations, excellent customer service and profitable growth in core and related businesses. These strengths are offset by the group's aggressive capital structure and its business concentrations among certain wireless carriers and retailers. Also, risk management becomes a greater challenge as the group expands internationally.

Based on Moody's calculations, Asurion's pro forma debt-to-EBITDA ratio for the 12 months through September 2013 will be in the range of 6.5x to 7.0x, which is aggressive for the rating category. Moody's expects Asurion to reduce its leverage to 6.5x or lower within the next year based on its track record of organic growth in revenues and EBITDA.

Asurion's pro forma financing arrangement includes a $100 million senior secured revolving credit facility maturing in 2018 (rated Ba3, expected to be undrawn at closing), $5.3 billion of senior secured first-lien term loans maturing in 2019 and 2020 (rated Ba3, includes proposed incremental borrowing of $550 million), a new $1.7 billion senior secured second-lien term loan maturing in 2021 (rated B3), and $59 million of other debt (unrated).

Factors that could lead to an upgrade of Asurion ratings include: (i) debt-to-EBITDA ratio below 5x, (ii) (EBITDA - capex) coverage of interest exceeding 3x, (iii) free-cash-flow to debt consistently above 8%, and (iv) operating margins exceeding 20%.

Factors that could lead to a rating downgrade include: (i) debt-to-EBITDA ratio above 6.5x on a sustained basis, (ii) (EBITDA - capex) coverage of interest below 2x, (iii) free-cash-flow to debt consistently below 5%, or (iv) operating margins below 15%.

Moody's has assigned the following ratings (and loss given default (LGD) assessment) to Asurion, LLC:

Corporate family rating B1;

Probability of default rating B1-PD;

$300 million incremental first-lien term loan (maturing 2019) Ba3 (LGD3, 36%);

$250 million incremental first-lien term loan (maturing 2017) Ba3 (LGD3, 36%);

$1.7 billion second-lien term loan B3 (maturing 2021) (LGD5, 86%).

The rating agency has downgraded the following ratings (and LGD assessment) of Asurion, LLC:

$100 million first-lien revolving credit facility to Ba3 (LGD3, 36%) from Ba2 (LGD3, 39%);

Approximately $4.7 billion of first-lien term loans to Ba3 (LGD3, 36%) from Ba2 (LGD3, 39%).

The following ratings of Lonestar Intermediate Super Holdings, LLC were downgraded and will be withdrawn upon closing of the transaction:

Corporate family rating to B1 from Ba3;

Probability of default rating to B1-PD from Ba3-PD;

$1 billion senior unsecured term loan to B3 (LGD6, 93%) from B2 (LGD6, 93%).

Based in Nashville, Tennessee, NEWAsurion is a leading provider of consumer technology protection services. The company provides value-added services to the wireless telecommunications industry domestically and internationally. The company also provides service contract administration for retailers, manufacturers, utilities, financial service companies, telecommunications companies and other service companies primarily in the US.

The methodologies used in this rating were Moody's Global Rating Methodology for Insurance Brokers & Service Companies published in February 2012, and 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.

Paul Bauer
VP - Senior Credit Officer
Financial Institutions 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 Riegel
MD - Insurance
Financial Institutions 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 downgrades Asurion ratings following recap announcement
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