Hyperion Insurance Group Ltd.

The stable outlook reflects our expectation that the combined group will achieve annual organic growth of about 6% over the next two years. It also incorporates our view that the group will not undertake any further material acquisitions or issue additional incremental debt, which would slow our predicted pace of deleveraging. We could lower the rating if increased competition or loss of key personnel were to stifle the group's revenue growth, profitability, and cash flow generation, which could result in sustained negative free operating cash flow (FOCF) and funds from operations (FFO) cash interest coverage dropping below 2x. We could also lower the rating if the group were to undertake further material debt-financed acquisitions, or if its financial policy became

...Hyperion has a highly acquisitive business model, but with a good track record of integration.Hyperion tends to make at least four acquisitions each year, usually structured with half the acquisition price paid up-front with cash and shares, and half deferred subject to performance and retention measures. The financing of the group's acquisitions, alongside the associated transaction fees and intra-year consolidation of acquired businesses, typically results in year-end leverage being about one turn higher than it would be pro forma. While the costs associated with these acquisitions weigh somewhat on Hyperion's EBITDA each year, we consider the company to have a strong track record of integrating acquisitions, which has helped to maintain consistent organic growth. In our view, the company's track record of organic growth and free operating cash generation offsets its very high leverage. With about ú1.2 billion of senior secured debt, which is frequently upsized to fund acquisitions, we...

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