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KWOR Acquisition, Inc. -- Moody’s affirms KWOR’s B3 corporate family rating on debt funded dividend, outlook stable

·14 min read
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Rating Action:

Moody’s affirms KWOR’s B3 corporate family rating on

debt funded dividend, outlook stable

16 February 2021

Company adding $107 million in debt, total rated credit facilities increasing to over $400 million

New York, February 16, 2021 – Moody's Investors Service has affirmed the B3 corporate family

rating and B3-PD probability of default rating of KWOR Acquisition, Inc. (holding company for

Alacrity Solutions Group, LLC, together with its affiliates, Alacrity) following the company's

announcement of borrowings to help fund a dividend to shareholders. The company is adding $60

million to its first-lien term loan (affirmed at B2), drawing an additional $17 million under its delayed

draw term loan (affirmed at B2), and issuing a new $30 million second-lien term loan (unrated). The

firm will use proceeds from these borrowings plus cash on hand to fund a $164.5 million dividend

and pay related fees and expenses. The rating outlook for KWOR Acquisition, Inc. is stable.
RATINGS RATIONALE
According to Moody’s, Alacrity’s rating reflects its position as a leading US claims management

services company primarily specializing in homeowners claims, its national field adjusting platform,

and its good EBITDA margins and cash flows. The company has a relatively stable customer

base with high switching costs, providing field and desk adjusting, desktop review, and managed

repair services primarily to property and casualty insurers that sell homeowners, automobile and

commercial policies. Alacrity has a national footprint with 11 US locations and 900 employees plus

access to an adjuster base of over 4,000 independent contractors.
These strengths are offset by aggressive financial leverage, modest interest coverage and insurance

carrier concentration where the top three insurers account for over half of the company's revenues.

Given the company's business concentration in homeowners claims, Alacrity's revenues and

earnings are subject to fluctuations in claims volumes due to both ordinary and catastrophic events.
The issuance of debt to help fund a shareholder dividend is credit negative, and it will push Alacrity's

pro forma debt-to-EBITDA ratio above 7x, based on Moody’s estimates. However, the rating agency

expects the company to reduce its leverage below 7x within the next few quarters. Alacrity has

(EBITDA - capex) coverage of interest between 1.5x and 2x 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

and certain unusual items. The firm's private equity sponsors led by Kohlberg & Company would

likely provide additional support if needed to support the credit profile, said Moody's.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade of Alacrity's ratings include: (1) debt-to-EBITDA ratio declining

below 5.5x, (2) (EBITDA - capex) coverage of interest exceeding 2x, (3) free-cash-flow-to-debt ratio

exceeding 5%, and (4) greater diversification of carrier relationships.
The following factors could lead to a downgrade of Alacrity's ratings: (1) revenue decline, (2) debt-to-

EBITDA ratio remaining above 7x, (3) (EBITDA - capex) coverage of interest below 1.2x, or (4) free-

cash-flow-to-debt ratio below 2%.
Moody's has affirmed the following ratings of KWOR Acquisition, Inc:

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Corporate family rating at B3;
Probability of default rating at B3-PD;
$50 million backed senior secured first-lien revolving credit facility maturing in June 2024 at B2

(LGD3);
$360 million (including pending $60 million increase) backed senior secured first-lien term loan

maturing in June 2026 at B2 (LGD3);
$50 million (fully drawn, including the pending $17 million draw down) backed senior secured first-

lien delayed draw term loan maturing in June 2026 at B2 (LGD3).
The rating outlook for KWOR Acquisition, Inc. is 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 Indiana, Alacrity is a provider of outsourced claims management services in the US. In

addition to its core field adjusting services, Alacrity also provides desk adjusting, desktop review and

managed repair services. For the 12 months ended September 2020, Alacrity generated revenue of

$283 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

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.

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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.
Chris Scott

AVP-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
Sarah Hibler

Associate Managing Director

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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