BlackRock Agrees to $300M Loan for Root Insurance
- Category: NATIONAL
- Date: 27-01-2022
Days after it announced it had to lay off 330 employees due to worsening loss costs, auto insurer Root Insurance has finalized a $300 million term loan from BlackRock Financial Management.
The five-year loan will carry an interest rate of term SOFR + 9%.
In conjunction with the term loan, Root issued BlackRock warrants equal to 2% of all issued and outstanding shares on a diluted basis at an exercise price of $9.00 per share.
Under the terms, BlackRock may have an observer attend meetings of the Root board of directors.
“We are pleased with the successful execution of this new term facility. It accomplished several important objectives including extending our debt maturity and further enhancing our liquidity position with a partner focused on the long-term success of Root,” said Alex Timm, Root co-founder and chief executive officer, in announcing the loan. “We are executing on a disciplined strategy to create enduring value through strong underwriting results, the development of our embedded product, and prudent capital management.”
Mark Lawrence, managing director on BlackRock’s global credit team, took note of the insurer’s embedded product also. “We are excited to form a long-term partnership with Root, an auto Insurtech company with differentiated technology, and we recognize the potential of the innovative embedded product the company is developing through their exclusive partnership with Carvana,” Lawrence said.
Root and digital car seller Carvana are developing an embedded insurance product that lets Carvana offer personalized, bindable quotes to car buyers.
The Carvana deal also gave Root a cash infusion. Carvana agreed to invest $126 million in the company, giving it a five percent ownership stake.
In announcing the layoffs earlier this week, Timm said the pandemic, supply chain and inflationary pressures have “caused historic levels of loss cost increases.”
He said that he believed the realignment will drive efficiency and increased focus on Root’s priorities that include executing pricing changes.
Despite consistent losses, Root has pursued a continuous growth strategy, with Carrier Management reporting in March that the digital auto insurer was executing a national expansion as it reported higher expenses in sales and marketing, technology and related development and general administrative costs.
Last year the company began to add independent insurance agents to its distribution mix.
Root lost more than $415 million from January through September 2021, almost double the loss for the same period a year earlier. The insurer also took year-to-date hits on net premiums earned and total revenues. It promised a marketing revamp would start to bear fruit in 2022.
Root’s fourth quarter/full year 2021 earnings call is scheduled for February 24.
Prior to its IPO, Root, which launched in 2015, had raised $523 million in venture capital, along with an additional $100 million in debt financing, through the fall of 2019.
Investors in Root have included DST Global, Coatue, Drive Capital, Redpoint Ventures, Ribbit Capital, Scale Venture Partners, and Tiger Global Management.