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Moody’s, Fitch Affirm Osaic’s Credit Ratings

Osaic’s acquisition of Lincoln will have minimal impact on the wealth management firm’s debt leverage and interest coverage, the ratings agencies said.

Osaic’s plan to acquire $108 billion Lincoln Wealth will have minimal impact on the firm’s debt leverage and interest coverage, according to reports from Moody’s Investors Service and Fitch Ratings. The two ratings agencies said their outlook on the wealth management firm’s credit was stable.

This follows a similar report from S&P Global Ratings last week, estimating the acquisition will cost Osaic $1.04 billion, factoring in transaction costs and retention loans to Lincoln advisors.

Lincoln National Corp. signed an agreement in December to sell its wealth management unit, with about 1,450 financial advisors, to Osaic for $700 million.

In December, Moody’s placed Osaic’s ratings on review for downgrade, including its B2 corporate family rating, B1 senior secured first lien bank credit facility ratings, B1 senior secured first lien notes ratings and Caa1 senior unsecured rating. The agency said it was concerned about the acquisition’s possible negative effect on Osaic’s financial profile and new debt issuance. 

Moody’s has confirmed those ratings, citing Osaic’s improved profitability, cash flow and debt leverage throughout 2023. Its financial position allows it to better absorb the debt it plans to issue, Moody’s said.

“The stable outlook reflects Moody’s expectations that the Lincoln wealth acquisition will not pose an outsized operational burden during integration, the targeted synergies will largely be achieved within a year of the acquisition close, and that Osaic's financial policies will remain largely unchanged,” Moody’s said in the report. “The stable outlook also reflects Moody's expectations that Osaic's financial profile will continue to be supported by high interest rates in 2024.”

Moody’s expects the financing will slightly increase Osaic’s adjusted debt to EBITDA leverage to 5.5x or under on a pro forma basis at the end of 2024, compared to 5.3x for the trailing 12 months ending Sept. 30, 2023. The firm’s EBITDA to interest expense ratio will decline to 2.1x on a pro-forma Moody’s adjusted basis at the end of 2024, compared to 2.2x for the same trailing 12-month period.

Fitch Ratings affirmed Osaic’s long-term issuer default rating at B, senior secured debt rating at B+/RR3, and senior unsecured debt rating at CCC+/RR6. The agency said it expects the firm’s pro forma leverage to stay at 5.5x and pro forma interest coverage of 2.1x on a trailing 12-month basis through Sept. 30, 2023.

“The rating affirmation reflects Fitch's view that, based on information provided to the agency, the transaction will not have a meaningful impact on leverage or interest coverage metrics, and the additional revenue and potential synergies associated with the transaction will result in further de-leveraging and improved interest coverage over time,” the Fitch report said.

Fitch also cited Osaic’s ability to successfully integrate acquisitions, such as American Portfolios, Infinex and Ladenburg Thalmann.

“The rating affirmation also continues to reflect Osaic's improving scale and market position as one of the largest independent financial advisors in the U.S.; cash-generative business model; a relatively flexible cost base, which should help cushion revenue declines in downward market environments; and high advisor retention rates,” Fitch said.

Fitch also pointed to factors that could constrain Osaic’s ratings, including high leverage levels, weak interest coverage, low margins and a highly competitive IBD and RIA market.

“Additional rating constraints include Osaic's private equity ownership, which introduces a degree of uncertainty over the company's future financial policies and a potential for more opportunistic growth strategies,” Fitch said.

Osaic is majority-owned by Reverence Capital Partners, which is seeking a buyer for up to 20% of the wealth management firm, according to a Bloomberg report.

A spokesman for Osaic did not respond to a request for comment prior to publication.

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