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Standard & Poor’s Ratings Services has lowered its long-term corporate credit rating on London-based global wholesale and reinsurance broker, Cooper Gay Swett & Crawford (CGSC) to ‘B-‘ from ‘B’ with a stable outlook is stable.

S&P also said it has lowered its “issue rating on CGSC’s first-lien credit facility to ‘B-‘ from ‘B’ and maintained the ‘3’ recovery rating” for the $380 million first-lien credit facility of a $305 million term loan due 2020 and a $75 million revolver due 2018, as well as the issue rating on the $120 million second-lien term loan due 2020 to ‘CCC’ from ‘CCC+’ and maintained the ‘6’ recovery rating.

Credit analyst Julie Herman explained that the “downgrade reflects the continued decline in CGSC’s operating performance in the first half of 2014 relative to our expectations. We revised our outlook on CGSC to negative following fiscal 2013 results, which showed EBITDA declines of 35 percent primarily caused by challenges in the company’s Latin American and London reinsurance brokerage businesses.

S&P’s report noted that this “resulted in leverage escalating to 9.5x by December 2013 from 6.3x in the prior year. Despite the deteriorated leverage, we thought there was a possibility that the company could bring operating performance back to historical levels and de-lever significantly to less than 7x by year-end 2014.

“The company employed various initiatives to achieve this, including recruiting new management that is more focused on cost reduction, employing tactical sales strategies, and boosting earnings flow-through from material acquisition activity in late 2013 funded through balance-sheet cash.”

As a result S&P said the “company began to see the benefit of some of these initiatives;” however, “results from the first half of the year continued to underperform materially relative to our expectations and the company’s budget.

“Specifically, the company experienced continued organic growth declines through second-quarter 2014 due to increased competition on larger accounts in Latin America, difficult market conditions in Europe resulting in lower renewals and new business development, and pressure on property rates in North America,” the report continued. “As a result, although leverage began to trend slightly downward at 9.2x as of June 30, 2014, we believe that CGSC’s financial profile will not improve to a level commensurate with its current rating by year-end 2014.”

Source: Standard & Poor’s

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