S&P: Confie Seguros Holding II Co. Rating Affirmed, Debt Ratings Assigned; Outlook Stable Hightstown
"Our ratings continue to reflect Confie's fair business risk profile and highly leveraged financial risk profile," said S&P Global Ratings credit analyst Hema Singh. The proposed new issuances results in neutral credit-protection measures (pro-forma debt-to-EBITDA ratio of about 7x according to our calculations for year-end 2016). We believe Confie's sustained competitive position, growing revenue and EBITDA base, and cash-flow generating capabilities will enable it to support its debt level.
The stable outlook on Confie) reflects our expectation that it will maintain its leading market position in the nonstandard automobile independent agency in the U. S. and that its merger and acquisition (M&A) strategy will continue to boost revenues and EBITDA growth. Although we believe the company produces good free cash flow, we expect it to use available cash for its smaller acquisitions. Therefore, we forecast its financial profile to remain highly leveraged with a debt-to-EBITDA ratio of 6.8x-7.5x, funds from operations-to-debt ratio in the high single digits, and EBITDA coverage in the low 2.0x area.
We could lower the ratings in the next 12 months if Confie doesn't meet our financial expectations, is not successful in its acquisition strategy, or incurs additional debt not supported by prospective operating earnings. Key metrics deterioration that could lead to a downgrade include our forecast of financial leverage of more than 7.5x and EBITDA coverage of less than 2.0x.
It's unlikely that we will raise the rating in the next 12 months given Confie's very aggressive financial policies. If these financial policies become less aggressive, key metrics improvement that could lead us to an upgrade include maintenance of adjusted leverage of less than 5x and coverage above 3x.