NEW YORK--(BUSINESS WIRE)--
Kroll Bond Rating Agency (KBRA) has assigned a rating of BBB- with a
stable outlook to the junior subordinated notes to be issued by
Jacksonville-based Fortegra Financial Corporation (Fortegra). The
organization is a leading provider of credit protection, warranty, and
specialty underwriting products and services. Fortegra currently has an
issuer rating of BBB with a stable outlook.
KBRA expects Fortegra to issue up to $125 million of fixed-rate
resetting junior subordinated notes with a stated maturity of 2057.
Fortegra intends to use all or substantially all of the net proceeds
from the offering to repay the outstanding indebtedness under its
existing senior secured credit facility, and upon such repayment, to
terminate the facility. Remaining net proceeds, if any, will be used for
general corporate purposes, which may include acquisitions or the
redemption of its $35 million of outstanding trust preferred securities
due 2037. With a significant capital contribution in late 2016 from
Fortegra’s parent, Tiptree Inc. (NASDAQ: TIPT), the organization’s
financial leverage following the issuance will be roughly 32%.
Additionally, Fortegra’s pro forma interest coverage is expected to be
sound – in the range of four to five times – and pro forma cash coverage
in excess of three times. KBRA notes that the organization benefits from
diversified sources of earnings, of which a significant portion is from
non-insurance subsidiaries.
The notes will be unsecured, subordinated and junior to all existing and
future senior indebtedness of Fortegra as well as structurally
subordinated to all debt and other liabilities of its subsidiaries.
Under the indenture, Fortegra has the right to defer interest for up to
five consecutive years on a fully cumulative basis. The notes will pay
an additional 2.0% interest if its rating is downgraded to the BB
category and 4.0% if downgraded to the B category. The notes are
non-callable for ten years from the date of issuance.
Fortegra’s ratings reflect its consistent underwriting profitability,
supplemented by considerable fee income, which has resulted in favorable
trends in capitalization. In addition, Fortegra maintains a balanced mix
of revenue and earnings facilitated by its diversified product
distribution through small-to-medium sized banks, small loan companies,
managing general agents, independent wireless retailers and auto
dealerships. Partially balancing these strengths are Fortegra’s moderate
premium leverage and somewhat limited geographic diversification.
Additionally, the organization possesses elevated intangibles driven by
its acquisition-oriented strategy and 2014 purchase by Tiptree. KBRA
notes that Fortegra’s finite-lived intangibles will largely be amortized
over the next several years.
A rating upgrade in the near future is not expected. However, sustained
growth in earnings (both regulated and non-regulated), continued
favorable capital trends, and maintenance of sound financial flexibility
could result in positive momentum. Material increases in financial
leverage – including the addition of securities to Fortegra’s capital
structure that are senior to the junior subordinated notes – or a
significant decrease in interest coverage could result in a rating
downgrade. In addition, a change in risk profile, a significant earnings
miss relative to projections, material investment losses, decline in
creditworthiness of Tiptree, or departure of key members of the
management team could result in a negative rating action.
The rating was assigned using KBRA’s Global
Insurer & Insurance Holding Company Rating Methodology
published on April 21, 2016.
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About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a
Nationally Recognized Statistical Rating Organization (NRSRO). In
addition, KBRA is recognized by the National Association of Insurance
Commissioners (NAIC) as a Credit Rating Provider (CRP).
View source version on businesswire.com: http://www.businesswire.com/news/home/20171012006423/en/
Kroll Bond Rating Agency
Analytical:
Fred
DeLeon, 646-731-2352
Director
fdeleon@kbra.com
or
Andrew
Edelsberg, 646-731-2371
Managing Director
aedelsberg@kbra.com
or
Donna
Halverstadt, 646-731-3352
Managing Director
dhalverstadt@kbra.com
Source: Kroll Bond Rating Agency