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Fitch Expects to Rate Mercury General Corp's Senior Notes 'BBB+'
March 1, 2017 / 3:35 PM / 9 months ago

Fitch Expects to Rate Mercury General Corp's Senior Notes 'BBB+'

(The following statement was released by the rating agency) CHICAGO, March 01 (Fitch) Fitch Ratings has assigned a 'BBB+(EXP)' rating to Mercury General Corporation's (NYSE: MCY) $350 million issuance of senior notes maturing in 2027. KEY RATING DRIVERS MCY recently announced a $350 million senior note issuance that is expected to increase pro forma financial leverage to 16.6%. MCY reported financial leverage of 15.4% at year-end 2016. As a result of increased interest expense from the senior notes, pro forma operating interest coverage at year-end 2016 is expected to range in the high single digits. MCY is expected to use the proceeds from the offering to repay the outstanding bank debt of the holding company and Mercury Casualty Company, with the remaining funds being used for general corporate purposes. On Feb. 16, 2017, Fitch revised the Rating Outlook for Mercury General Corporation (NYSE: MCY) and its subsidiaries to Negative from Stable, while the ratings of the insurance subsidiaries were affirmed at 'A+'. In addition, Fitch downgraded the holding company Issuer Default Rating (IDR) to 'A-' from 'A'. RATING SENSITIVITIES The key rating triggers that could result in a return to a Stable Outlook include sustainable improvement in underwriting profitability on an absolute basis and relative to peers; and further evolution of MCY's operating profile that includes broader premium scale and geographic diversification, coupled with consistent profitability and book value growth. The key rating triggers that could result in a downgrade include a sustained deterioration in underwriting profitability with a statutory combined ratio over 101% and operating ratio over 95%; an increase in statutory net leverage to over 4.0x; and deterioration in Mercury General's capitalization as measured by Fitch's Prism capital model to below a score of 'Strong'. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating: Mercury General Corp. --$350 million senior notes due 2027 'BBB+(EXP)'. Contact: Primary Analyst Christopher A. Grimes, CFA Director +1-312-368-3263 Fitch Ratings, Inc. 70 West Madison Street Chicago, Illinois 60602 Secondary Analyst Douglas Pawlowski, CFA Senior Director +1-312-368-2054 Committee Chairperson Douglas L. Meyer, CFA, FLMI Managing Director +1-312-368-2061 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. 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