Amynta Holdings LLC Outlook Revised To Negative On Reduced EBITDA Due To COVID-19 Impact; 'B-' Ratings Affirmed

  • Amynta's warranty administration segment faces operating challenges from COVID-19-related to shelter-in-place and social distancing measures, which is expected to lead to declining light-vehicle sales and consumer product purchases, and to a lesser extent in its managing general agent (MGA) segment due to a reduction in overall economic activity.
  • We expect Amynta's adjusted leverage to worsen potentially above 10x, depending on the depth and duration of the economic fallout.
  • We are revising our outlook on Amynta to negative from stable, and we are affirming our 'B-' long-term issuer credit rating on the company and our 'B-' long-term issue rating on the company's first-lien credit facility.
  • The negative outlook reflects our expectation that the COVID-19 fallout will negatively affect Amynta's business units, pressuring leverage and coverage over the next 12 months.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it revised its outlook on MGA and auto warranty administrator Amynta Holdings LLC to negative from stable. We affirmed our 'B-' long-term issuer credit rating on Amynta Holdings LLC and our 'B-' long-term issue rating on the company's first-lien credit facility. The recovery rating on the first-lien facility remains '3', indicating our expectation for meaningful recovery (55%-60%; rounded estimate: 56%) in the event of a payment default.
The revised outlook reflects our expectation that Amynta's adjusted leverage will deteriorate to about 10x for the next 12 months if the current economic fallout and subsequent impact to light-vehicle sales, consumer warranty pressures, and reduction in payrolls persist for the next two to three months.
Amynta is a collection of warranty and MGA/specialty risk companies focused on underwriting and administering non-life insurance contracts. Its core business segments are MGA (about 49% of revenues), warranty (41%), and specialty risk (10%). Amynta is exposed to risk associated with light-vehicle sales and reduced consumer spending in its warranty segment, and to a lesser extent faces pressures in its MGA and specialty risk segments from reduced overall economic activity, including higher unemployment and impact on the small business market, which may affect premium levels underwritten.
Amid the COVID-19 pandemic, the current limitations on nonessential business and many people's focus on social distancing, rather than purchasing cars or warranty protection, is expected to pressure both revenue and EBITDA, leading to a potential significant spike in leverage. Additionally, as small businesses remain under pressure from the economic fallout, reductions in payrolls and business bankruptcies could negatively affect the premium levels that Amynta's MGA can underwrite.
The company has been taking steps to reduce operating expenses where possible while positioning the business to capitalize on market opportunities once things return to a more normal state. Because a portion of the expenses are not variable and cannot be cut when revenue is not there, we anticipate the company will face margin pressures for the extent of the fallout.
We assess Amynta's liquidity as adequate based on our expectation that sources will exceed uses of cash by at least 1.2x over the next 12 months, and that this ratio will be sustained even with a 15% decline in EBITDA. Supporting our view is the undrawn revolver and no significant debt maturities.
Also supporting this assessment are Amynta's satisfactory standing in the credit markets, sound relationships with banks, and likeliness to absorb a high-impact, low-probability event with limited need for refinancing, given its limited working capital and capital expenditure needs (less than 1% of revenue annually).
The negative outlook reflects our view that the COVID-19 pandemic has negatively affected the auto and consumer warranty segments and will erode Amynta's 2020 EBITDA. However, we expect this shock will be short-term, and as such, we expect Amynta's cash flow and EBITDA from its warranty and MGA segments to improve once the U.S. economy returns to a state of normalcy.
We could downgrade the company if this rebound is weaker or the downturn lasts longer than we expected. Some indications of this could include:
  • Amynta's debt-to-EBITDA ratio rising above 8.5x and its coverage deteriorating to below 1.5x, indicating sustained pressures on servicing obligations; or
  • Its liquidity profile deteriorating further from levels that we currently view as adequate.
We could revise the outlook to stable if Amynta improves its leverage and coverage measures such that its debt-to-EBITDA ratio stays below 10x and its EBITDA interest coverage ratio stabilizes above 1.5x. This may happen if the company quickly rebounds from the disruption to its business operations and achieves solid warranty administration sales from potential pent-up demand due to the recent economic fallout.
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