NFP will likely refi converts early

March 29, 2010

NPF 0.75% converts due 2/1/12 are trading at 88, which presents a great opportunity for capital appreciation because I believe that management wants to refinance the convertible soon. I spoke  with management and they expressed interest in issuing either a high yield bond or a new convert so that they can clear out near term maturities. Also, NFP has a credit facility due 8/22/11 and I believe that the company may be in negotiations to extend the credit facility maturity, which may require it to refinance the converts to a longer maturity date than the new credit facility.

Business Description

National Financial Partners is a insurance broker that sells to high net worth individuals on a commission basis. NFP has a network of brokers that sell insurance products for a wide range of insurance firms including Lincoln financial, Hartford and others. NFP collects a commission fee for each product sold.

NFP itself is not an insurance company so it does not have a portfolio of assets and has no credit risk. It only takes a fee for each transaction.

Capital Structure

Cash = $56m

Credit Facility = $40m ($160m undrawn) –matures 8/22/11; debt /EBITDA has to be less than 2.5x

0.75% converts due 2/1/12 = $230m 

 The company generated $116m FCF in 2009 ($123m of CFFO and only $7m Capex). The company has been FCF positive every year for the last 10 years. Traditionally, the company has use the FCF to make acquisitions. It is likely that NFP would have to extend its credit facility and refinance the convert in order to give it the most flexibility for future acquisitions.

June 9, 2010

NFP announces plans to issue $125m of new convertible bonds. The company will tender for the old 0.75% converts for 95.5 for a quick 7.5 gain in just a few months.


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