Fitch: Verisk Rating Unaffected by Sale of Its Healthcare Unit

NEW YORK--(BUSINESS WIRE)-- Verisk Analytics, Inc.'s (Verisk) 'BBB+' Issuer Default Rating (IDR) is not affected by its $820 million sale of Verisk Health (Health), Verisk's healthcare analytics business, according to Fitch Ratings. Fitch notes that Health comprised approximately 15% of fiscal year 2015 total sales. The transaction is expected to close by June 30, 2016.

Verisk intends to use a portion of net sale proceeds to repay outstanding amounts under its revolving debt facility. For the fiscal year ended Dec. 31, 2015 (FY 2015), Fitch estimates Verisk's pro forma total leverage to be approximately 3.1x. Pro forma adjustments include a full year of Wood Mackenzie, an acquisition that closed in May 2015 and $165 million in revolving debt repayments made after Dec. 31, 2105 and exclude a full year of Health. Fitch calculates Verisk could use the full net sale proceeds to be received at closing, expected to be approximately $600 million, to repay debt and pro forma total leverage would fall to 2.5x.

Fitch views the transaction positively as it improves Verisk's operational profile given Health's lower margins and proprietary data concentration, and greater competition and capital intensity relative to Verisk's other businesses. In addition, it reduces Verisk's revenue volatility given Health's exposure to transactional sales and healthcare market consolidation. Finally, it accelerates Verisk's efforts to de-lever back to its target leverage of 2.5x.

Fitch's ratings incorporate the expectation that Verisk will de-lever back to 2.5x by year-end 2016 given strong free cash flow (FCF) generation. Fitch projects annual pro forma FCF of approximately $515 million to $615 million (includes full year of Wood Mac and excludes Health). Fitch notes that management has a demonstrated track record of de-levering to target levels following debt-funded acquisitions. Although Verisk has stated they will use sale proceeds to repay bank debt, we do not believe Verisk needs to use the full amount to de-lever back to 2.5x by year-end 2016.

Verisk is selling Health to an affiliate of Veritas Capital for total consideration of $820 million to be comprised of $720 million cash, a $100 million subordinated promissory note and other contingent considerations. The transaction is subject to regulatory approvals and is expected to close by June 30, 2016.

As of Dec. 31, 2015, the company had solid liquidity consisting of $138 million in cash. Pro forma for revolving debt repayments made since Dec. 31, 2015, Verisk also had $1.0 billion available under its $1.75 billion revolving credit facility due May 2020. Verisk's liquidity position and overall financial flexibility is supported by FCF, with the company reporting $624 million in FCF for FY 2015. Verisk will have no material maturities until 2019 when $250 million in unsecured notes is due.

RATING SENSITIVITIES

Fitch does not anticipate an upgrade within the rating horizon given the elevated leverage and the company's recent increase in its total leverage target from 2.0x to 2.5x. Fitch could upgrade the ratings if the company were to return to its previous leverage target of 2x with a rationale for such target and FCF-to-adjusted debt in the 20%-25% range.

Ratings may be pressured if the company's performance does not materially meet Fitch's expectations and leverage is unable to return to the 2.5x target level. While not expected, material share-buyback activity or additional debt-funded acquisitions that delayed the company's planned leverage reduction may also pressure the ratings.

Fitch currently rates Verisk as follows:

Verisk

--Long-term IDR 'BBB+';

--Short-term IDR 'F2';

--Revolving credit facility 'BBB+';

--Senior unsecured notes 'BBB+'.

Additional information is available on www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160426006919/en/

Fitch Ratings
Primary Analyst
Jack Kranefuss
Senior Director
+1-212-908-0791
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Matt Hankin
Director
+1-646-582-4985
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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