Fitch Expects to Rate Harbinger's $200MM Unsecured Issuance 'B/RR4'

NEW YORK--()--Fitch Ratings expects to assign a rating of 'B/RR4' to Harbinger Group, Inc.'s (Harbinger) proposed $200 million senior unsecured note issuance. The notes are expected to have the same terms of the company's existing unsecured debt.

KEY RATING DRIVERS

The proposed debt issuance does not affect Harbinger's existing long-term Issuer Default Rating (IDR) of 'B' and Positive Rating Outlook. The resulting change in the parent company leverage and coverage ratios is within Fitch's expectations. Harbinger plans to use the proceeds from the proposed issuance for general corporate purposes, including financing future acquisitions by Harbinger or its subsidiaries and/or share repurchases.

Fitch believes Harbinger's unsecured debt is subordinated to the company's senior secured debt, which has a blanket lien on most of the company's assets. Pro forma for the issuance, Fitch estimates the proportion of unsecured debt to total debt will increase to approximately 55% from 48% currently. While Fitch views the reduction in balance sheet encumbrance positively, it continues to assign an 'RR4' Recovery Rating to the unsecured debt, based on its analysis of Harbinger's balance sheet investments. This results in equalization of the senior unsecured debt rating with the IDR of 'B'.

Fitch revised Harbinger's Outlook to Positive from Stable in June 2014, following the completion of several transactions, which have improved the company's credit profile, in Fitch's view. The Positive Outlook is supported by the stable performance of HRG's underlying businesses. While these factors are positive from a quantitative perspective, more immediate upward rating momentum is tempered by HRG's limited track record of operation under more conservative financial metrics, combined with the potential for opportunistic acquisitions and/or other activities which could alter HRG's risk profile.

RATING SENSITIVITIES

The senior unsecured debt rating of 'B/RR4' is sensitive to potential changes in the company's IDR. Furthermore, the unsecured debt rating is sensitive to changes in the level of available asset coverage. Fitch has assigned a Recovery Rating of 'RR4' on HRG's unsecured debt, which results in equalization with the IDR.

In resolving the Positive Rating Outlook, Fitch will primarily focus on HRG's ability to maintain or improve its current financial metrics, while deploying existing cash balances in a measured manner which does not adversely impact the company's risk profile or materially alter its operating strategy.

The following developments could result in potential long-term upward rating momentum in HRG's IDR:

--Prudent deployment of balance sheet cash and further diversification of investments;

--Improvement in parent company interest coverage to over 1.5x on a sustained basis;

--Leverage (debt-to-equity) at the parent level maintained at or below current levels.

The following drivers could result in downward pressure on HRG's IDR and/or removal of the Positive Rating Outlook:

--Increase in risk appetite in the company's future cash deployment;

--Significant increase in parent company leverage;

--A sustained reduction in interest coverage below 1.0x;

--Deterioration in operating performance at any of HRG's significant subsidiaries, which results in a material decline in their value, dividend capacity and/or credit ratings.

HRG is a publicly traded investment holding company with consolidated assets of $29.9 billion at June 30, 2014. HRG was established as a permanent capital vehicle to obtain controlling equity interests in established, dividend-paying businesses that operate across a diversified set of industries. The company currently operates in four business segments: consumer products through its 59% ownership in Spectrum Brands, insurance through its 80% ownership in F&G, Compass Production Partners, LP, and Salus, an asset based lending business.

Fitch expects to assign the following ratings:

--Proposed $200 million senior unsecured notes due January 2022 'B/RR4'.

Fitch currently rates Harbinger as follows:

--Long-term IDR 'B', Outlook Positive;

--Senior unsecured notes at 'B/RR4';

--Senior secured notes 'BB-/RR2'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Investment Manager and Alternative Funds Criteria' (Dec. 12, 2013);

--'Fitch Revises Harbinger Group's Outlook to Positive on Recent Capital Actions' (June 6, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725057

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=867414

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Contacts

Fitch Ratings
Primary Analyst
Ilya Ivashkov, CFA
Senior Director
+1-212-908-0769
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Sheehy
Senior Director
+1-212-908-0138
or
Tertiary Analyst
Grace Barnett
Director
+1-212-908-0718
or
Committee Chairperson
Nathan Flanders
Managing Director
+1-212-908-0827
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Ilya Ivashkov, CFA
Senior Director
+1-212-908-0769
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Sheehy
Senior Director
+1-212-908-0138
or
Tertiary Analyst
Grace Barnett
Director
+1-212-908-0718
or
Committee Chairperson
Nathan Flanders
Managing Director
+1-212-908-0827
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com