The global expansion of the Apex Group, a Bermuda-founded service provider continues, with a ratings agency unmoved by their latest borrowing.

The company has become one of the world’s largest providers of fund administration services since it began 20 years ago in 2003.

Apex has just raised another $400 million fungible add-on to its existing senior secured first-lien term loan through a private placement, mainly to repay $385 million of drawings outstanding under its $460 million revolving credit facility due July 2026.

The company was founded by its current chief executive, Peter Hughes, and maintains headquarters in Bermuda.

The group is a global operator with a presence in 50 countries, serving more than 10,000 clients with more than $3 trillion of assets on its platforms.

Apex is majority-owned (61 per cent) by private equity firm Genstar, with minority shareholders TA Associates, Mr Hughes, Mubadala and Carlyle holding most of the remaining equity.

Based on the year to June 30, 2023, the group generated pro forma revenue of around $1.3 billion.

Moody's said the Apex Structured Intermediate Holdings Ltd's B2 corporate family rating, B2-PD probability of default rating and the B1 instrument ratings assigned to Apex Group Treasury and Apex Group Treasury Limited remain unaffected by the group’s new private placement.

Moody’s said: “The group's privately placed $400 million fungible is an add-on to its existing $720 million senior secured first-lien term loan tranche due in July 2028, issued by Apex Group Treasury. The rating outlook for these entities is unchanged at negative.

“While Apex's growth strategy with largely debt-funded acquisitions is considered as credit negative, as it has led to a substantial amount of Moody's-adjusted debt of around $3.9 billion pro forma for the current transaction, further up from the $3.7 billion of adjusted debt the group had on balance sheet at the end of September 2022, this transaction has no meaningful impact on the group's financial leverage.

“However, Apex's leverage remains very high at 8.9x pro forma for this transaction and based on the 12 months period to June 2023, increased by around 0.6x from 8.3x at the end of September 2022.

“Accordingly, the group's CFR remains weakly positioned in the B2 rating category, as expressed by the negative outlook. Moody's continues to expect Apex to meaningfully reduce its leverage towards 7.0x during the second half of 2023, mainly through (earnings before interest, taxes, depreciation, and amortisation) growth as the majority of targeted synergies related to past acquisitions are realised and the group maintains good organic revenue growth.

“Apex's B2 CFR further reflects: (1) the group's established market position as one of the largest independent fund services providers globally with a comprehensive product offering and global footprint, which will be further improved by the recent acquisitions; (2) the largely recurring revenue streams supported by a sticky and diversified customer base and strong underlying market fundamentals; and, (3) the group's good profitability levels that should translate into strong free cashflow generation beyond 2023 as one-off cash costs fade away.

Conversely, the CFR is constrained by (1) Apex's exposure to regulatory and legal risk; (2) the elevated financial leverage of 8.9x Moody's-adjusted Debt/EBITDA, based on the 12 months period to June 30, 2023 and pro forma for the add-on, with a still high level of pro forma adjustments to EBITDA; (3) Apex's merger and acquisition-driven growth strategy that continues to constrain deleveraging potential; and (4) the integration risk related to the various recent acquisitions, such as potential delays in the realisation of targeted synergies or increased implementation cost, and potential distraction resulting from the substantial integration causing delays in the forecasted strong organic growth.