Investing.com -- S&P Global Ratings has upgraded the long-term issuer credit rating of The Baldwin Insurance Group Inc. (Baldwin) to ’B’ from ’B-’, citing the company’s successful efforts to reduce leverage on the back of strong earnings growth and disciplined financial policy. The ratings agency also upgraded the issue-level ratings on Baldwin’s revolver, first-lien term loan, and senior secured notes to ’B’ from ’B-’, maintaining recovery ratings at ‘3’, which suggests the expectation of a 50% to 70% recovery of principal in the event of default.

The upgraded ratings reflect Baldwin’s improved leverage, which stood at 6.6x at the end of 2024, down from 8.6x in 2023 and 10x in 2022. The reduction in leverage is primarily attributed to solid earnings growth and minimal capital markets activity, demonstrating the company’s commitment to reducing its leverage.

Baldwin has shifted its growth strategy from debt-funded merger and acquisition (M&A) activity to focus more on organic growth. This shift has resulted in cleaner quality of earnings and improved leverage. The company has not incurred significant debt since its leverage peaked in 2022.

The company’s financial policy, which includes the repricing and incremental add-on in early 2025 to fund earnout payments, has been supportive to credit quality. Baldwin’s S&P Global Ratings-adjusted EBITDA margins have benefited from declining M&A and other transaction-related expenses.

The stable outlook provided by S&P Global Ratings reflects expectations of continued strong organic growth and steady margin expansion. Baldwin ended 2024 with S&P Global Ratings-adjusted leverage comfortably within the previous upside trigger of 7.0x. The company’s net leverage was 4.1x at year-end 2024, slightly above its target range of 3.0x-4.0x, indicating further improvements to leverage are expected in the near term.

Baldwin reported robust organic growth of 17% in 2024, reflecting successful execution of past and ongoing internal investments, including tech-driven sales enablement tools, a growing suite of propriety insurance products, and differentiated embedded distribution capabilities.

Despite above-average organic growth, Baldwin’s margins are expected to continue lagging behind peers. The S&P Global Ratings-adjusted EBITDA margin was 18.1% in 2024, improving from 16.1% in 2023. This was slightly below original expectations due to rate and exposure headwinds and the unfavorable impact to contingent commissions related to storm activity in 2024.

The stable outlook also reflects expectations that Baldwin will continue to demonstrate performance momentum over the next 12 months. However, S&P Global Ratings could consider a downgrade over the next 12 months if earnings or credit metrics deteriorate, or if the company adopts a more aggressive financial policy. Conversely, an upgrade could be considered if Baldwin exceeds performance expectations or adopts more conservative financial policy decisions.

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