Focus Financial Partners Inc.

The stable outlook indicates our expectation that Focus will operate with weighted average S&P-adjusted debt to EBITDA of 5x-7x during the next 12 months, while continuing to acquire wealth managers and generate strong organic growth. We could lower the ratings if Focus operates with debt to adjusted EBITDA above 7x or EBITDA interest coverage below 2x on a sustained basis, per our calculations. We could also lower the ratings if its business deteriorates significantly, which could be demonstrated by weakening organic growth or an erosion of the downside protections in its future partnership agreements. We could raise the ratings if the company operates with S&P-adjusted debt to EBITDA comfortably below 5x on a sustained basis and the business continues to

...We expect the company to operate with leverage above 5x over the next 12 months, per our calculations. In May 2023, Focus Financial Partners Inc. (Focus) launched a $500 million term loan raise expected to close in the third quarter, in connection with its pending acquisition by private equity firms Clayton, Dubilier & Rice LLC (CD&R) and Stone Point Capital LLC (Stone Point). Gross reported debt will grow to over $3 billion pro forma for the transaction closing. As a result, we expect leverage of above 5x over the next 12 months. We expect Focus to continue to make debt-funded acquisitions, and for leverage to remain elevated given the trend of consolidation in the wealth management industry and heightened all-in multiples. Furthermore, while Focus maintained a commitment of keeping leverage below 4.5x as a public company, we do not expect the same commitment as a private company. Focus's business is structured such that there is better visibility into the company's cash flow generation...

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