TEXT-Fitch rates Affiliated Managers Group retail notes 'BBB-'
Aug 8 - Fitch Ratings has assigned a 'BBB-' rating to Affiliated Managers Group Inc.'s (AMG) $200 million of senior unsecured retail notes. The notes have a coupon of 6.375% and will mature on Aug. 15, 2042. The notes will be callable, in whole or part, at any time on or after Aug. 15, 2017 at the issuer's option. The notes will rank equally with AMG's other unsecured debt outstanding. Proceeds from the issuance will be used to repay borrowings under AMG's unsecured revolving credit facility, and for general corporate purposes. As of June 30, 2012, AMG had $195 million outstanding under its revolving credit facility. Leverage, measured as gross debt to trailing twelve months (TTM) adjusted EBITDA, increases moderately to 2.35x at 2Q'12, up from 2.08x at TTM 1Q'12, as AMG borrowed $195 million on its bank revolver to fund the acquisition of equity interests in Yacktman Asset Management Co. and Veritable, LP., in 2Q'12. Fitch calculates AMG's leverage, giving credit for LTM earnings from the recent acquisitions. Interest coverage, measured as TTM adjusted EBITDA to interest expense, was 6.76x at 2Q12, a slight decline from 7.09x at TTM 1Q'12. Both ratios are solidly in line with AMG's current ratings. Fitch notes that leverage tends to increase following a large acquisition, but declines as the integration is completed and the cash flows are used to reduce debt levels. Given that a portion of the proceeds from the new issuance will be used to repay outstanding borrowings under the revolving credit facility, Fitch does not envision there being a material impact on the company's leverage levels as a result of the issuance. RATING DRIVERS AND SENSITIVITIES AMG's ratings reflects its growing scale in the asset management space, solid investment performance by its affiliates, strong cash flow generation, and adequate leverage and interest coverage ratios. Ratings also factor in the company's inherent exposure to volatility in broader financial markets. Improvement in current leverage and interest coverage metrics and consistent operating and investment performance could lead to positive rating action. Conversely, aggressive acquisitions funded by increased debt levels, material deterioration in leverage or interest coverage ratios, sustained investment underperformance at major affiliates, significant increase in equity puts by affiliates leading to liquidity issues, and/or unexpected operational losses or significant net outflows, could lead to negative rating action. Fitch currently rates AMG as follows: Affiliated Managers Group Inc. --Long-term Issuer Default Rating (IDR) 'BBB-'; --Senior bank credit facility 'BBB-'; --Senior convertible notes 'BBB-'. AMG Capital Trust I AMG Capital Trust II --Trust preferred securities 'BB-'. The Rating Outlook is Stable. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 16, 2011); --'Investment Manager and Alternative Funds Criteria' (Dec. 23, 2011). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria Investment Manager and Alternative Funds Criteria
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