Fitch Expects to Rate Harbinger Group's Unsecured Notes 'B/RR4'

Fitch Ratings expects to assign a rating of 'B/RR4' to Harbinger Group, Inc.'s (Harbinger) $200 million senior unsecured notes issuance. The proposed notes are expected to mature in 2022.

KEY RATING DRIVERS

The proposed debt issuance does not affect Harbinger's existing long-term Issuer Default Rating (IDR) of 'B' and Stable Rating Outlook. Harbinger plans to use the proceeds from the proposed issuance for general corporate purposes, including financing future acquisitions by Harbinger or its subsidiaries. The proposed notes are expected to have significantly fewer financial covenants than Harbinger's existing debt.

The new debt issuance will result in an incremental increase in the company's parent only financial leverage. Fitch estimates the pro forma parent-only debt to total capital ratio to increase to approximately 70%, which is at the high end of Fitch's range in the company's rating sensitivities.

Harbinger's balance sheet is predominantly encumbered by the holders of the $925 million secured notes. Therefore, the unsecured debt will be effectively subordinated to the senior secured debt. On a pro forma basis, the unsecured debt will represent roughly 14% of total debt. Based on its analysis of Harbinger's balance sheet investments, Fitch has assigned an 'RR4' recovery rating to the proposed issuance, which is equivalent to the recovery rating on the existing secured debt. Fitch expects to review the recovery ratings during its next full review cycle.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include a significant deterioration of financial covenant cushions in Harbinger's debt agreements, a reduction in Fidelity & Guaranty Life (F&G) ordinary statutory dividend capacity to below $40 million, a change in Spectrum Brands' (SPB) strategy to reduce leverage to between 2.5x to 3.5x over the intermediate term, an increase in Harbinger's (parent only) financial leverage ratio to above 70% on a sustained basis, 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's ordinary statutory dividend capacity from its current level of approximately $90 million, a reduction in Harbinger's parent only financial leverage ratio below 40%, and the deployment of existing cash balances that improves the magnitude and diversity of cash flows to Harbinger.

Harbinger is a NYSE-traded holding company that is partially owned by investment funds affiliated with Harbinger Capital Partners LLC (Harbinger Capital). Harbinger Capital established Harbinger Group, Inc. 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 four business segments: consumer products through its 58.6% ownership in SPB, insurance through its 80.7% ownership in F&G, EXCOJV, an energy partnership, and Salus, an asset based lending business.

Fitch expects to assign the following ratings:

--Proposed $200 million senior unsecured notes due January 2022 'B/RR4'.

Fitch currently rates Harbinger as follows:

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

--$925 million 7.875% senior secured notes 'B/RR4'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Investment Manager and Alternative Funds Criteria' (Dec. 12, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725057

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814796

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Fitch Ratings
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Ilya Ivashkov, CFA, [phone]
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