Cross Financial Corp. -- Moody’s assigns ratings to Cross Financial Corp (B2 corporate family); outlook stable

Moody's

Tue, Aug 11, 2020, 2:28 PM31 min read

<!DOCTYPE html> <html lang="" xml:lang=""> <head> <title>/nwsys/www/images/PR_1000003227</title> <meta http-equiv="Content-Type" content="text/html; charset=UTF-8"/> <meta name="generator" content="pdftohtml 0.36"/> <meta name="date" content="2020-08-11T14:24:30+00:00"/> <style type="text/css">  </style> </head> <body bgcolor="#A0A0A0" vlink="blue" link="blue">  <style type="text/css">  </style> <div id="page1-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227001.png" alt="background image"/> Rating Action:  Moody’s assigns ratings to Cross Financial Corp (B2 corporate family); outlook stable 11 August 2020 $420 million of credit facilities rated New York, August 11, 2020 – Moody's Investors Service has assigned a B2 corporate family rating and a B2-PD probability of default rating to Cross Financial Corp (Cross Financial), a regional US insurance broker. Moody’s also assigned B2 ratings to the company’s new $70 million five-year senior secured revolving credit facility and $350 million seven-year senior secured term loan. Net proceeds will be used to refinance the company's existing credit facilities, repurchase shares from certain equity holders, fund near-term acquisitions and pay related fees and expenses. The outlook for the ratings is stable. RATINGS RATIONALE According to Moody’s, Cross Financial’s ratings reflect its good regional market presence in small and middle market insurance brokerage particularly in Maine, Massachusetts and New Hampshire. The company has good diversification across clients, client industries, producers, and insurance carriers primarily for P&C products with some employee benefits. Cross Financial also has a track record of healthy EBITDA margins and cash flow. These strengths are offset by elevated financial leverage post transaction, modest interest coverage, and a geographic concentration where the top state accounts for over 40% of 2019 revenue and the top three states account for over 80% of 2019 revenue. Given the company’s geographic concentration, Cross Financial’s revenues and earnings are subject to fluctuations in the economic and regulatory conditions of the northeast US, in particular Maine and Massachusetts. Other challenges include the company’s limited scale relative to other rated insurance brokers as well as potential liabilities arising from errors and omissions, a risk inherent in professional services. The coronavirus-related economic downturn is dampening insurance brokers' revenues, earnings and cash flows. Moody's expects that Cross Financial will limit discretionary spending and conserve liquidity during the downturn. Following the refinancing, Moody’s estimates that Cross Financial’s pro forma debt-to-EBITDA will be around 5.5x with (EBITDA - capex) coverage of interest between 2.5x-3x and a free-cash-flow- to-debt ratio in the low-to-mid single digits. These pro forma metrics include Moody’s adjustments for operating leases, run-rate earnings from acquisitions and certain other debt like obligations. The stable outlook reflects Moody’s expectation that Cross Financial will reduce leverage to about 5x over the next year, supplemented by tuck-in acquisitions. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Given the company’s limited scale and geographic concentration, an upgrade of Cross Financial's ratings is unlikely in the intermediate term. Factors that could contribute positively to the company’s credit profile include: (i) increased scale and geographic diversification, (ii) debt-to-EBITDA ratio maintained below 4.5x, (iii) (EBITDA - capex) coverage of interest exceeding 3.5x, and (iv) free- cash-flow-to-debt ratio exceeding 7%. </div>  <style type="text/css">  </style> <div id="page2-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227002.png" alt="background image"/> The following factors could lead to a downgrade of Cross Financial’s ratings: (i) revenue decline and/ or disruptions to existing or newly acquired operations, (ii) debt-to-EBITDA ratio consistently above 5.5x, (iii) (EBITDA - capex) coverage of interest below 2.5x, (iv) free-cash-flow-to-debt ratio below 4%, or (v) deviation from the company’s historic financial policies. Moody's has assigned the following ratings (and loss given default (LGD) assessments) to Cross Financial: Corporate family rating at B2; Probability of default rating at B2-PD; $70 million five-year senior secured first-lien revolving credit facility at B2 (LGD3); $350 million seven-year senior secured first-lien term loan at B2 (LGD3). Outlook, Stable. The principal methodology used in these ratings was Insurance Brokers and Service Companies published in June 2018 and available at  https://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_1121967 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. Based in Bangor, ME, Cross Financial ranks as the 27th largest US insurance broker based on 2019 revenues, according to Business Insurance. The company's product mix is about 60% commercial insurance, 25% personal and 15% employee benefits and related products, all distributed to small and middle market businesses and individuals across New England. In 2019, Cross generated total revenue of $188 million. 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 </div>  <style type="text/css">  </style> <div id="page3-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227003.png" alt="background image"/> 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_1133569 . 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. 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. Chris Scott AVP-Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> Sarah Hibler Associate Managing Director Financial Institutions Group JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> </div>  <style type="text/css">  </style> <div id="page4-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227004.png" alt="background image"/> © 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. </div>  <style type="text/css">  </style> <div id="page5-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227005.png" alt="background image"/> All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody’s investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at  www.moodys.com  under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within </div>  <style type="text/css">  </style> <div id="page6-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003227006.png" alt="background image"/> the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non- NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. </div> </body> </html>

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Cross Financial Corp. -- Moody’s assigns ratings to Cross Financial Corp (B2 corporate family); outlook stable

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