Moody’s rates Achilles’ loan B2

Moody’s Investors Service said it assigned a B2 rating to a $75 million senior secured first-lien delayed-draw term loan of Achilles Acquisition LLC (together with its affiliates, OneDigital, B3 corporate family rating), a holding company for Digital Insurance LLC. The company is also borrowing an incremental $165 million under its senior secured first-lien term loan, which is also rated B2. Achilles will use the proceeds to help fund acquisitions, pay down the revolver balance and pay fees and expenses. The outlook for OneDigital is unchanged at stable.

According to Moody’s, OneDigital’s ratings reflect its expertise in employee benefits, healthy EBITDA margins and solid organic growth. OneDigital earns most of its revenue from a growing national retail benefits business. The company serves its customers with a proprietary technology platform, a national call center and locally based insurance professionals in markets across the country.

OneDigital’s strengths are offset by its modest size relative to other rated insurance brokers and service companies, high financial leverage, and the large number of small agencies acquired since its inception in 2000. During 2019, the company bought Northwestern Benefit, its largest acquisition to date. This acquisition expanded OneDigital’s business with larger employers and the company believes it will enhance organic growth. OneDigital’s acquisition activities during 2019 resulted in sizable contingent earnout liabilities, which it is funding through a combination of operating cash flow and incremental borrowings. The company also is exposed to errors and omissions in the delivery of professional services, the agency said.

Following the transaction, Moody’s estimates OneDigital will have a pro forma debt-to-EBITDA ratio in the range of 6.5x -7x, interest coverage between 1.5 and 2x and a free-cash-flow-to-debt ratio in the low single digits. These pro forma metrics reflect Moody’s adjustments for operating leases, contingent earnout liabilities, run-rate earnings from completed acquisitions and certain non-recurring costs and other items.

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