NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a rating of BBB- with a Stable Outlook to $25 million of senior unsecured notes issued by Clear Blue Financial Holdings, LLC (CBFH). CBFH is an insurance holding company for Clear Blue Specialty Insurance Company (CBSIC) and Clear Blue Insurance Company (CBIC) (together, referred to as Clear Blue). CBSIC is an excess and surplus lines property/casualty company domiciled in North Carolina; CBIC is an admitted property/casualty insurer domiciled in Illinois. On March 14, 2018, KBRA had assigned an issuer rating of BBB- with a Stable Outlook to CBFH.
KBRA expects CBFH to use the proceeds from the debt offering to redeem $25 million of outstanding preferred equity. The notes have a fixed coupon of 7% and mature on April 15, 2025. The notes are unsecured obligations of CBFH and will rank senior in right of payment to any of CBFH’s existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the notes. The notes will rank equally in right of payment to all of CBFH’s existing and future senior indebtedness, but will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the notes will be structurally subordinated to the indebtedness and other obligations of CBFH’s subsidiaries.
CBFH’s debt-to-capital ratio is approximately 25%, and KBRA expects CBFH to maintain financial leverage at or below this level in the foreseeable future. Additionally, KBRA anticipates that CBFH will forego upstreaming dividends from Clear Blue in the near to medium term. KBRA notes that CBFH receives significant unregulated income and cash flows from its servicing companies, resulting in sound interest coverage.
The ratings for CBFH and Clear Blue reflect its sound capitalization, favorable underwriting leverage, conservative investment portfolio, and limited underwriting risk as a pure fronting specialist. KBRA believes capital is sufficient to support the company’s strategy as a fronting carrier in the medium term. Clear Blue’s management team has extensive experience in the fronting business with long-term working relationships, as well as external business partners and reinsurers. Balancing these strengths is the relative start-up nature of the company and the execution risk for Clear Blue’s management team. The business strategy places a strong reliance on reinsurance which creates the potential of failure to pay because of disputes or slow paying reinsurers. However, KBRA believes Clear Blue has substantially mitigated this exposure.
The Stable Outlook reflects KBRA’s expectation that Clear Blue will continue to execute its business plans and maintain sound capitalization, grow its insurance business in a prudent and profitable manner, maintain the investment portfolio’s high credit quality, retain key members of its management team, and preserve financial flexibility through conservative financial and operating leverage metrics.
The ratings are based on KBRA’s Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.
To access the Clear Blue rating report, click here.
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.