Oct. 9 - Overview
-- MMM Holdings Inc., the leading Medicare Advantage insurer in Puerto Rico, is issuing a new senior credit facility.
-- We are assigning our ‘B+’ issuer credit rating to MMM Holdings and a ‘B+’ issue rating to the credit facility.
-- The stable outlook indicates that we are not likely to change the rating on MMM Holdings in the next 12 months. Rating Action On Oct. 9, 2012, Standard & Poor’s Ratings Services assigned its ‘B+’ long-term issuer credit rating to MMM Holdings Inc. and its ‘B+’ debt rating to its first-lien senior secured credit facility comprising $450 million of term loan and a $30 million revolver. The outlook is stable. Rationale MMM Holdings is a downstream holding company in the Aveta Inc. group with operations in Puerto Rico. It will use the majority of the proceeds from the new debt issuance to refinance an existing debt obligation ($257.6 million) and for other prepayment and issuance-related expenses. The remaining amount ($193 million) will be a dividend to shareholders. The credit facility is guaranteed by the nonregulated subsidiaries of MMM Holdings. Previously, the Aveta Inc. group had a single credit agreement wherein the two downstream holding companies--NAMM Holdings Inc. and MMM Holdings--were coborrowers. Total outstanding debt obligation as of September 2012 was $515 million for the entire Aveta Inc. group, with $258 million of debt at each of the downstream holding companies. As part of the new credit facility, MMM Holdings is refinancing its portion of the outstanding debt obligation and NAMMM Holdings is expected to repay its portion of the obligation through available capital resources. Also, unlike the previous credit agreement, the new credit agreements will no longer have any cross-guarantees between the two downstream holding companies or from the parent, Aveta Inc. We view MMM Holdings’ business risk profile to be supportive of the rating. The company has two regulated insurance subsidiaries, namely Medicare y Mucho Mas (MMM) and Preferred Medicare Choice (PMC), that provide Medicare Advantage (MA) to seniors in Puerto Rico. With a market share of more than 40% in Puerto Rico and a 213,000-member base as of June 2012, the company is the leading MA insurer in this region. The company has strong medical-management capabilities and an experienced management team that has executed a profitable growth path during the past few years, supported by of a captive sales force and a strong independent physician network (IPA). However, MMM Holdings’ business risk profile is constrained by its geographic concentration in Puerto Rico and narrow product focus in MA. We view MMM Holdings’ operating performance as a strength to its financial risk profile. On a consolidated basis, we expect MMM Holdings to have EBITDA margins around 8%-10% in 2012 and 2013. We expect the company to continue producing consistent earnings, underpinned by its ability to manage cost through its IPA network. However, weak capitalization and aggressive financial policy weakens its financial risk profile. As per our risk-based insurance capital model, consolidated statutory capital of MMM and PMC are well deficient of the ‘BBB’ level. Although the company is meeting current regulatory requirements in Puerto Rico (the requirement is to move to 200% by 2014), its National Association of Insurance Commissioners risk-based capital ratio of 140% is weak when compared with insurance companies’ outside Puerto Rico. The current level of debt leverage (we expect a debt-to-EBITDA ratio around 2x and a debt-to-capital ratio around 65%-75% as of year-end 2012 and 2013) is toward the higher end of our universe of privately owned insurance holding companies, but is within our threshold for the rating. We expect EBITDA fixed-charge (interest and required amortization) coverage to be around 3x, supported by consistent earnings. In addition, NAMM Holdings has an aggressive financial policy as seen in its use of debt to pay dividends to shareholders. This will be the second time this year that the Aveta Inc. group has increased leverage to pay dividends to its shareholders. We expect the presence of required excess cash-flow sweeps and amortization to help reduce leverage in the future. But, given the group’s history of dividend recapitalization, we assume that future dividends may offset the projected deleveraging. Outlook The stable outlook indicates that we are not likely to change the rating on MMM Holdings in the next 12 months. We expect MMM Holdings to maintain debt leverage around 2x during the outlook horizon, while consistent operating performance will support EBITDA fixed-charge coverage of around 3x. However, we may lower the ratings if the company increases leverage to more than 2x or suffers a drop in profitability (less than 5% EBITDA margin). On the other hand, the company’s concentrated business risk profile and highly levered financial risk profile limit a ratings upside. Related Criteria And Research
-- Holding Company Analysis, June 11, 2009
-- Evaluating Insurers’ Competitive Positions, April 22, 2009 Ratings List New Rating MMM Holdings Inc. Counterparty Credit Rating Foreign Currency B+/Stable/-- $450 Mil. Term Loan Due 2017 $30 Mil. Revolver Due 2017 Senior Secured B+ Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Primary Credit Analyst: Deep Banerjee, New York (1) 212-438-5646;
email@example.com Secondary Contacts: James Sung, New York (1) 212-438-2115;
Peggy H Poon, New York (1) 212-438-8617;