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Related Issuers
Rating Action:

Moody's downgrades Asurion's ratings (corporate family to B2) based on increased debt

21 Jul 2015

Approximately $8 billion of rated credit facilities, including $900 million of incremental borrowings

New York, July 21, 2015 -- Moody's Investors Service has downgraded the corporate family rating of Asurion, LLC to B2 from B1 based on the company's announced plan to increase borrowings by $900 million to help fund a minority equity buyout as part of an anticipated equity recapitalization. Moody's also downgraded Asurion's probability of default rating to B2-PD from B1-PD. The rating agency affirmed Asurion's first-lien credit facility ratings at Ba3, and downgraded its second-lien term loan rating to Caa1 from B3 (see below for complete rating list). The rating outlook for Asurion is stable.

RATINGS RATIONALE

"The downgrade of Asurion's corporate family rating reflects the group's persistent high financial leverage and sizable payments to equity holders," said Bruce Ballentine, Moody's lead analyst for Asurion. "Still, the group generates healthy interest coverage and free cash flow as a leading provider of protection programs for wireless devices and consumer electronics."

Asurion's pending transactions involve total cash sources of $1.7 billion, including a new first-lien term loan of $700 million, a second-lien term loan add-on of $450 million, and existing cash of $550 million. Cash uses will include repayment of a $250 million first-lien non-amortizing term loan, equity buyout plus general corporate purposes totaling about $1.4 billion, and payment of related fees and expenses.

Giving effect to the proposed transactions, Moody's estimates that Asurion's pro forma debt-to-EBITDA ratio will be in the range of 7.5x-8x, while (EBITDA - capex) coverage of interest will be in the range of 1.6x-1.8x. The rating agency views such financial leverage as aggressive for Asurion's single-B rating category, and expects it to decline below 7x over the next 12-18 months.

Asurion's business profile encompasses both mobile protection (MP) and extended service contracts (ESCs). Asurion has a dominant position in MP distributed through wireless carriers in the US, a significant presence in MP in Japan, and a growing presence in other selected international markets. Asurion also has a good position in the US market for ESCs. The group as a whole has a record of efficient operations, excellent customer service and profitable growth in core and related businesses.

Moody's said these strengths are offset by the group's aggressive capital structure, its business concentrations among certain wireless carriers and retailers, and slowing growth prospects in the relatively mature US ESC market. Also, risk management becomes a greater challenge as the group expands internationally.

Factors that could lead to an upgrade of Asurion's ratings include: (i) debt-to-EBITDA ratio below 6x, (ii) (EBITDA - capex) coverage of interest exceeding 2.5x, (iii) free-cash-flow-to-debt ratio exceeding 6%, and (iv) EBITDA margins exceeding 20%.

Factors that could lead to a further rating downgrade include: (i) debt-to-EBITDA ratio remaining above 7x, (ii) (EBITDA - capex) coverage of interest below 1.5x, (iii) free-cash-flow-to-debt ratio below 3%, or (iv) EBITDA margins below 15%. Also, the first-lien credit facilities could be downgraded in the event of a shift in the funding mix toward first-lien from second-lien borrowings.

Moody's has taken the following rating actions with respect to Asurion and its credit facilities (including loss given default (LGD) assessments):

Corporate family rating downgraded to B2 from B1;

Probability of default rating downgraded to B2-PD from B1-PD;

$190 million first-lien revolving credit facility due 2019 assigned rating of Ba3 (LGD3) (reflects proposed $90 million increase to existing revolver with one-year extension);

$4,038 million (outstanding) first-lien term loan due 2019 affirmed at Ba3 (LGD3);

$835 million first-lien term loan due 2020 affirmed at Ba3 (LGD3);

$250 million first-lien non-amortizing term loan due 2017 affirmed at Ba3 (LGD3) (loan to be repaid under proposed transactions);

New $700 million first-lien term loan due 2022 assigned rating of Ba3 (LGD3);

$2,150 million second-lien term loan due 2021 downgraded to Caa1 (LGD5) from B3 (LGD5) (reflects proposed $450 million add-on to existing loan).

The principal methodology used in these ratings was Moody's Global Rating Methodology for Insurance Brokers and Service Companies published in February 2012. 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 copies of these methodologies.

Based in Nashville, Tennessee, Asurion is a leading provider of protection programs for wireless devices and consumer electronics both domestically and internationally. Asurion is indirectly owned by NewAsurion Corporation, whose ownership is divided among four private equity firms (Madison Dearborn, Providence Equity, Wells Carson and Berkshire Partners), the Canadian Pension Plan Investment Board and company management.

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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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.

Bruce Ballentine
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's ratings (corporate family to B2) based on increased debt
No Related Data.
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