Cooper Gay debt ratings at risk of downgrade

Moody’s has put Cooper Gay Swett & Crawford (CGSC)’s debt ratings on review for a downgrade following a drop in underlying profit at the broking group.

Cooper Gay has a B3 corporate family rating and a B3-PD probability of default rating from Moody’s.

The rating agency also has a B2 rating on CGSC’s revolving credit facility and the first level of its term loan, and a Caa2 rating on its second level of the term loan.

Moody’s said that for the year to 31 March 2015, CGSC reported a drop in its earnings before interest, tax, depreciation and amortisation (EBITDA) margin to 13% because of weak organic growth in its international operations, particularly in London and Europe.

As a result of the falling EBITDA, the company’s debt level is now more than 10 times EBITDA.

Also, the firm’s EBITDA was around one times its interest bill for the year to March 2015, meaning the company is only just making enough profit to cover its interest payments.

Moody’s said its review of CGSC’s ratings will focus on the timing and magnitude of the company’s initiatives to restore revenue and EBITDA growth, the impact of expense reduction and other restructuring, as well as prospective interest coverage and free cash flow generation to service debt.

The rating agency said it would downgrade CGSC’s ratings if debt remains above eight times EBITDA on a sustained basis, if its interest coverage remains below 1.2 times or if the free cash flow to debt ratio is consistently less than 2%.

It could keep the ratings at their current level if efforts to restore revenue and EBITDA are successful, if the debt-to-EBITDA ratio trends towards eight times or below, if interest coverage exceeds 1.2 times, or if the free cash flow to debt ratio consistently exceeds 2%.

CGSC interim chief executive Martin Sullivan said: “We are obviously disappointed to have been placed on review but continue to remain focused on taking the corrective actions required to reduce our leverage ratio.

”It is important to note that being placed on review has no impact on our day-to-day operation, nor our financing costs or debt structure.”

On a positive note, Moody’s said CGSC has a good market presence as a wholesale and reinsurance broker and is well diversified geographically and by business line.