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Advisor Group Holdings, Inc. -- Moody's affirms Advisor Group's ratings, changes outlook to stable from negative

·14 min read

Rating Action: Moody's affirms Advisor Group's ratings, changes outlook to stable from negative

Global Credit Research - 14 Jan 2021

New York, January 14, 2021 -- Moody's Investors Service (Moody's) today affirmed Advisor Group Holdings, Inc.'s (Advisor Group) B3 Corporate Family Rating (CFR). Moody's also affirmed the B2 ratings for Advisor Group's senior secured debt and the Caa2 rating on Advisor Group's senior unsecured notes. Concurrently, Moody's changed Advisor Group's rating outlook to stable from negative.

Moody's has taken the following rating actions on Advisor Group Holdings, Inc.:

.... Corporate Family Rating, Affirmed B3

....$1,500 million Senior Secured 1st Lien Term Loan B, Affirmed B2

....$325 million Senior Secured 1st Lien Revolving Credit Facility, Affirmed B2

....$500 million Senior Secured Notes, Affirmed B2

....$413 million Senior Unsecured Regular Bond/Debenture, Affirmed Caa2

....Outlook, Changed To Stable from Negative

RATINGS RATIONALE

Moody's said the ratings affirmation reflects Advisor Group's successful navigation of the challenges presented by the coronavirus pandemic, equities markets volatility and sharp decline in short-term interest rates in early 2020.

Moody's said that Advisor Group's seasoned management team swiftly lowered expenses, raised efficiencies and adapted the firm's operations to a new remote work environment. In addition, Advisor Group was able to accelerate its integration of Ladenburg Thalmann, realizing a large portion of its forecasted expense synergies ahead of schedule. The firm has also exceeded its advisor retention targets, an important driver of client asset levels.

These credit positive actions highlight the company's ability to adapt, the rating agency noted, and puts Advisor Group in a stronger position to benefit from improving operating conditions and a strong, broad-based rise in equities markets.

The rebound in broad equities markets has aided in lifting Advisor Group's client asset levels, a key driver for the firm's advisory revenue. The increase in market levels during the fourth quarter of 2020 -- and our estimate of the firm's client asset levels for the period -- will set the stage for strong first quarter 2021 advisory revenue and asset-linked commission revenue, a credit positive.

The change in Advisor Group's outlook to stable from negative reflects Moody's expectation that the firm's expense management, substantial synergy benefits from the acquisition and strengthened client asset levels will improve the firm's credit profile during 2021.

In accordance with Moody's Loss Given Default (LGD) for Speculative-Grade Companies methodology, the B2 rating on Advisor Group's $500 million senior secured notes, $1,500 million first lien senior secured term loan and $325 million revolving credit facility reflect their priority ranking in Advisor Group's capital structure. The Caa2 rating of Advisor Group's $413 million senior unsecured notes is also based upon the application of Moody's Loss Given Default (LGD) for Speculative-Grade Companies methodology and the notes' secondary ranking in Advisor Group's capital structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Advisor Group's ratings could be upgraded if the company were to experience a sustainable improvement in its debt leverage on a Moody's adjusted basis to below 6.5x; or were to undergo a significant expansion of existing business activities that generated a sustainable improvement in profitability.

Moody's said the ratings could be downgraded were Advisor Group to suffer a significant deterioration in liquidity resulting in challenges to its ability to sustain operations at a competitive level, especially in recruiting and retaining advisors; were the firm's debt leverage on a Moody's adjusted basis to rise above 7.5x on a sustained basis; or were the firm to undertake additional debt-funded M&A activity resulting in further delay of its de-leveraging path.

In addition, Moody's noted that the ratings on Advisor Group's secured debt could be downgraded were there to be a significant reduction in the amount of unsecured debt outstanding, resulting in a reduction of the loss absorption provided by the unsecured debt and lifting the expected loss rate on the secured debt. The same could happen if the amount of secured debt was increased, becoming a larger proportion of the firm's overall capital structure.

The principal methodology used in these ratings was Securities Industry Service Providers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187116. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Fadi Abdel Massih Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Ana Arsov MD - Financial Institutions Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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