Moody’s upgrades Hub’s corporate family rating with stable outlook

Moody’s Ratings has upgraded Hub International Limited’s corporate family rating to B2 from B3, and its probability of default rating to B2-PD from B3-PD.

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

“Hub’s ratings upgrade reflects its solid market position in North American insurance brokerage, good diversification across products and geographic areas in the US and Canada, and consistently strong EBITDA margins,” Moody’s stated.

Adding: “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.”

The rating agency also upgraded Hub’s senior secured first-lien bank credit facilities and notes ratings to B1 from B2, and its senior unsecured note rating to Caa1 from Caa2.

Hub International Canada West ULC also saw its senior secured bank credit facility upgraded to B1 from B2.

The rating outlook for both entities has changed to stable from positive.

Moody’s also highlighted Hub’s strong presence in the middle market and high rank among wholesalers and managing general agents focused primarily on specialty liability products as it is among the ten largest.

Yet, it noted that these strengths are tempered by the company’s relatively high debt burden and modest fixed charge coverage.

Moody’s continued: “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.”

The agency also expects Hub’s organic growth to continue in the mid-single digits, following the healthy organic growth the company experienced through the first six months of 2024.

This expected growth, according to Moody’s, would be based on Hub’s good business diversification, client retention and new business generation, supplemented by acquisitions.

“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,” Moody’s concluded.

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