Moody’s Investors Service has downgraded MMM Holdings LLC.’s
Caribbean Business – Moody’s IFS ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.
As of June 30, MMM Holdings reported a stockholders’ deficit of approximately $157 million. MMM’s total revenues for the first six months of 2015 were $1.1 billion with approximately 503,000 Medicare and Medicaid members in Puerto Rico.
According to the credit-rating company, the downgrades follow MMM Healthcare’s decision to not make the Sept. 30 principal payment due under its credit facility. MMM Healthcare is in the process of renegotiating the terms of its credit facility and has entered into a forbearance agreement with the creditors that expires on Oct. 31. Moody’s outlook on the ratings remains negative.
Moody’s stated that the downgrade and negative outlook reflect two key issues: 1) the missed principal payment and the uncertainty of the ongoing negotiations with creditors, and 2) the uncertainty regarding the ability of the company to meet the regulatory required NAIC risk-based capital (RBC) ratio of 200% of authorized control level (ACL).
According to Moody’s, these credit issues were the result of a combination of several adverse financial developments during 2014 and 2015. First, there was a loss of approximately 46,000 Medicare Advantage members in 2014 due to reductions in the benefits MMM offered in its Medicare Advantage products, which were prompted by decreased reimbursements from the government. Second, the company breached a financial leverage covenant in the credit agreement beginning in Sept. 30, 2014 and continuing through 2015 as a result of lower EBITDA (earnings before interest, taxes, depreciation and amortization) due to the declining reimbursement rates. “As a result, MMM is not able to access its $30 million revolving credit facility.” Third, the announced 2016 Medicare Advantage reimbursement rates for Puerto Rico were significantly lower than expected, with insurance companies projecting a decrease of over 10%.
