Fitch Rates Harbinger Group Inc. Debt Issuance

CHICAGO--()--Fitch Ratings has assigned a 'B/RR4' rating to Harbinger Group Inc.'s (HRG) proposed issuance of a new seven year, $650 million senior secured security.

HRG plans to use the new security to finance its tender offer for the existing $500 million issue of 10.625% senior secured notes and for general corporate purposes. Fitch plans to withdraw the 'B/RR4' rating on the existing notes once the tender offer is completed.

Proposed financial covenants in the new security are similar to the existing debt, although Fitch believes new covenant levels will provide slightly more cushion to HRG. The larger size of the new security will increase leverage by a relatively small amount but does not have a material effect on Fitch's ratings. Parent company only financial leverage will increase to 59% from 55% at fiscal year-end, Sept. 30, 2012. Fitch estimates consolidated Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) will increase to 4.3x from 4.0x at fiscal year-end, Sept. 30, 2012. Interest coverage will also not be appreciably affected by the larger size of the new security since it also has a lower expected interest rate of 8%. This translates to roughly the same interest cost of the current 10.625% security.

Key rating triggers that could lead to a downgrade include a reduction in Fidelity & Guaranty Life Insurance's (F&G Life) ordinary statutory dividend capacity to below $40 million, a change in Spectrum Brand's (SPB) strategy to reduce leverage to between 2.5x to 3.5x within 18 to 24 months, an increase in consolidated leverage to the 6x range, an increase in HRG (parent only) financial leverage ratio to above 70%, and the deployment of existing cash balances that increases the enterprise's credit risk.

Key rating triggers that could lead to an upgrade include a significant increase in F&G Life's ordinary statutory dividend capacity from its current level of approximately $80 million, a reduction in consolidated leverage to the 4x range, a reduction in HRG (parent only) financial leverage ratio below 40%, and the deployment of existing cash balances that improves the magnitude and diversity of cash flows to HRG.

HRG is a NYSE-traded holding company that is majority owned by investment funds affiliated with Harbinger Capital Partners LLC (Harbinger). Harbinger established HRG as a permanent capital vehicle to obtain controlling equity interests in established, dividend paying businesses that operate across a diversified set of industries. The company currently operates in three business segments: consumer products through its 57.5% ownership in SPB, insurance through its wholly owned subsidiary F&G Life, and Salus, an asset based lending business.

Fitch has assigned the following rating to HRG:

--$650 million 8% senior secured notes due December 2019, 'B/RR4'.

Fitch currently rates HRG as follows:

--Long-term Issuer Default Rating (IDR) 'B', Outlook Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Oct. 18, 2012);

--'Corporate Rating Methodology' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Insurance Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692293

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contacts

Fitch Ratings
Primary Analyst:
Bruce E. Cox, +1-312-606-2316
Director
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Bruce E. Cox, +1-312-606-2316
Director
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com