Affiliated Managers keeps reducing leverage, focuses on flexibility

By Devika Patel

Knoxville, Tenn., Feb. 4 – Affiliated Managers Group, Inc. management expects market volatility to continue and is shaping the company’s balance sheet accordingly by reducing leverage and prioritizing flexibility.

“We continue to position our balance sheet to prioritize flexibility and prudent financial leverage in anticipation of continued market volatility,” chief executive officer Nathaniel Dalton said on the company’s fourth quarter and year ended Dec. 31, 2018 earnings conference call on Monday.

“On capital management, broadly speaking, we have maintained a prudent level of leverage to be able to capitalize on growth opportunities even in challenging markets,” president and chief financial officer Jay C. Horgen said on the call.

“During the fourth quarter, in the midst of a volatile market, we paid a 30 cent per share dividend and repurchased $76 million in shares while continuing to position our balance sheet, including extending the maturity of our revolver and term loan.

“Over the past five years, we have reduced our financial leverage as part of our disciplined approach to capital management.

“Prudent financial leverage... gives us the flexibility to deploy capital and capitalize on our growth opportunities, including in periods of market dislocation,” Horgen said.

The company extended its revolver and term loan in January and has $1 billion of capacity under the revolver.

“We did just extend our revolver, a new five-year revolver in January, extended our term loan as well,” Horgen said.

“So, we are well-positioned today, with leverage in a good place and also enough capacity on our revolver.

“We have over $1 billion on our revolver,” Horgen said.

Management intends to keep reducing leverage.

“When you look at the capital model over time, continuing to limit leverage and reduce it, we think we can do that while also returning capital to shareholders and we have repurchased shares in each of the last eight quarter, with $76 million being repurchased in the past quarter,” Horgen said.

“We do think we’re going to continue to reduce leverage, continue to repurchase shares, but the most important use of capital is investments,” Horgen said.

For the fourth quarter of 2018, adjusted EBITDA was $191.3 million, compared to $361.3 million for the fourth quarter of 2017.

For the year ended Dec. 31, 2018, adjusted EBITDA was $961.8 million, compared to $1,116,200,000 for the same period of 2017.

Cash and cash equivalents were $565.5 million as of Dec. 31, 2018, compared to $439.5 million as of Dec. 31, 2017.

On Jan. 18, the company amended and restated its credit agreements with Bank of America, NA as administrative agent, providing for a $1.25 billion senior unsecured multicurrency revolving credit facility due Jan. 18, 2024 and a $450 million senior unsecured term loan credit facility due Jan. 18, 2023.

The credit agreements amend and restate the company’s existing revolving credit agreement dated Sept. 22, 2015 and existing term credit agreement dated Oct. 15, 2018.

Borrowings under the revolver bear interest at Libor plus a margin that ranges from 87.5 basis points to 150 bps, and the commitment fee ranges from 8 bps to 20 bps, in each case depending on debt ratings.

Borrowings under the term loan bear interest at Libor plus a margin that ranges from 75 bps to 125 bps, also depending on ratings.

Subject to some conditions, the revolver may be increased by up to $500 million, and the company may borrow up to an additional $75 million under the term loan.

Proceeds under the revolver on the closing date were used to refinance debt under the existing revolving credit agreement, and future borrowings may be used for working capital and other general corporate purposes, including investments in new and existing affiliates, repayment of senior debt, repurchases of the company’s common stock and the payment of cash dividends on the company’s common stock.

The credit agreements contain financial covenants with respect to leverage and interest coverage.

For the revolver, Bank of America Merrill Lynch, Citizens Bank, NA and MUFG Bank, Ltd. are joint bookrunners, as well as joint lead arrangers together with Barclays Bank plc, JPMorgan Chase Bank, NA, Citigroup Global Markets Inc., Royal Bank of Canada and Wells Fargo Bank, NA. Citizens Bank and MUFG are co-syndication agents. Wells Fargo Bank, JPMorgan Chase and Barclays are co-documentation agents.

Bank of America is the lead arranger for the term loan.

Affiliated Managers is a Prides Crossing, Mass.-based asset management company.

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