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Brown & Brown to take on $600 million of 4.75% debt for acquisition
By Devika Patel
Knoxville, Tenn., Oct. 23 – Brown & Brown Inc. plans to take on up to $600 million of debt at a coupon of 4.75% to finance its $705 million acquisition of Hays Cos.’s insurance operations.
“From a financial standpoint, we’re paying $705 million at close, with $605 million in cash and $100 million in common stock,” chairman and chief executive officer J. Hyatt Brown said on the company’s third quarter ended Sept. 30 earnings conference call on Tuesday.
“We will finance the transaction initially through a combination of cash as well as debt from our $800 million revolver.
“Then we expect to term a portion of the initial purchase price on multi-tranche debt,” Brown said.
The company expects to take on up to $600 million of debt with a coupon of 4.75%.
“We’ll probably take on somewhere around $550 million to $600 million in debt, just depending upon cash that’s on the balance sheet and timing and, right now, we’re estimating interest rates of 4¾%, hopefully we’ll pay less than that,” senior vice president, treasurer and chief financial officer Cory T. Walker said on the call.
“Rates are ticking up right now,” Walker said.
The company is keeping leverage at a “comfortable” level of 2x.
“Our projected gross debt to EBITDA ratio for 2019 will be 2x,” Brown said.
“We’re comfortable with up to 3x gross debt to EBITDA ratio.
“Therefore, we still have sufficient head room as well as access to capital for future acquisitions,” Brown said.
With rising interest rates, the company wants to pay off its floating-rate debt.
“We anticipate paying down any floating interest debt with the cash generated from the business over the coming years in order to lower our interest costs,” Brown said.
Cash and cash equivalents were $423 million as of Sept. 30, 2018, compared to $573.4 million as of Dec. 31, 2017.
The acquisition is expected to close in November.
Brown & Brown is a diversified insurance company based in Daytona Beach, Fla.
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