Hub International Limited’s corporate family assigned B2 rating by Moody’s

Moody’s Ratings has upgraded Hub International Limited’s corporate family rating to B2 from B3, with a stable outlook, as well as its probability of default rating to B2-PD from B3-PD.

According to the agency, this upgrade was based on the company’s steady credit metrics and Moody’s expectation that Hub will maintain financial leverage toward the low end of its historical range.

Moody’s also upgraded Hub’s senior secured credit facility ratings to B1 from B2, and its senior unsecured note rating to Caa1 from Caa2.

Hub International Canada West ULC’s senior secured bank credit facility was also upgraded, to B1 from B2 and assigned a stable outlook.

Hub’s recent ratings upgrade acknowledges its robust market position in North American insurance brokerage, as well as its good diversification across various products and geographic regions within the US and Canada, contributing to its consistently impressive EBITDA margins.

“Hub has generated organic growth in the mid-single digits over time supported by strong retention and new business generation. We expect that Hub will maintain a debt-to-EBITDA ratio around 7x or lower (per Moody’s calculations) while continuing to pursue acquisitions,” Moody’s stated.

Hub’s strengths – like its size, strong presence in the middle market, and diversified mix of property and casualty, employee benefits and risk management products with expertise in several industries – are tempered by the company’s relatively high debt burden and modest fixed charge coverage, Mooby’s noted.

The agency added: “The company also faces potential liabilities from errors and omissions, a risk inherent in professional services. Hub will continue to pursue acquisitions, which carry execution risk, although the company has a good track record of integrating small and midsize brokers through common operating platforms and information systems.”

Hub reported healthy organic growth of 6.5% through the first six months of 2024, including 6.6% in the US and 6.0% in Canada.

Moody’s expecst organic growth to continue in the mid-single digits based on Hub’s good business diversification, client retention and new business generation, supplemented by acquisitions.

The agency concluded: “We expect that Hub will generally manage its debt-to-EBITDA ratio in the range of 6.5x -7.0x (per Moody’s calculations), with (EBITDA – capex) interest coverage above 1.5x, and a free-cash-flow-to-debt ratio in the low-to-mid-single digits.

“These metrics incorporate Moody’s accounting adjustments for operating leases, deferred earnout obligations and run-rate earnings from completed acquisitions.”

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