Rating Action: Moody’s assigns B3 CFR to Unified Women’s Healthcare LP; outlook stable
Global Credit Research – 04 Dec 2020
New York, December 04, 2020 — Moody’s Investors Service, (“Moody’s”) assigned a B3 Corporate Family Rating and B3-PD Probability of Default Rating to Unified Women’s Healthcare LP (“Unified”). Moody’s also assigned B2 ratings to the company’s senior secured first lien term loan and revolving credit facility. The outlook is stable.
Proceeds from the new credit facilities (including a proposed $140 million 8-year second lien term loan that is not rated) will be used to fund the purchase of Unified by Altas Partners (together with existing sponsor Ares Management), cover existing deferred purchase obligations (“DPOs”) related to closed acquisitions, to close acquisitions under Letters of Intent and cover transaction-related expenses. The B2 rating of the senior secured credit facilities is higher than that of the CFR reflecting the loss-absorption offered by the second lien term loan.
The following ratings were assigned:
Issuer: Unified Women’s Healthcare LP
Corporate Family Rating at B3
Probability of Default Rating at B3-PD
Proposed $80 million 5-year senior secured first lien revolving credit facility at B2 (LGD3)
Proposed $420 million 7-year senior secured first lien term loan at B2 (LGD3)
Outlook action:
Issuer: Unified Women’s Healthcare LP
Outlook assigned stable.
RATINGS RATIONALE
Unified’s B3 CFR reflects its moderate scale, high financial leverage, and execution risks associated with an active debt-funded acquisition strategy. Further, Unified has some geographic concentration with Florida and North Carolina representing more than half of consolidated revenues. Moody’s estimates that the company’s proforma debt/EBITDA at the close of the refinancing transaction, including certain add-backs for transaction expenses and estimated contributions from acquisitions, will approximate 7.0 times.
The B3 CFR is supported by Unified’s strong competitive position in the markets where it operates, which are highly fragmented. Further, Unified benefits from solid organic growth prospects. The rating is also supported by the alignment of management and physician incentives through physician ownership (~15% pro forma proposed transaction) and a physician compensation structure which is variable. The company has good payor diversity — approximately 90% of revenues are sourced from commercial payors with no payor representing more than 12% of total collections. Commercial payors typically offer higher reimbursement rates than government payors.
Moody’s expects Unified’s liquidity to be adequate. Moody’s expects the company to generate $20-$35 million in free cash flow over the next 12 months as well as have cash balances of approximately $10 million at close (excluding $115 million of restricted cash), along with full availability under the company’s $80 million committed bank revolver. Post-refinancing transaction, the company will have approximately $4.2 million in annual mandatory debt repayments.
The stable outlook reflects Moody’s expectation that the company will continue its rapid expansion strategy and keep leverage within a range of 6.0x – 7.5x.
Following are some of the preliminary credit agreement terms, which remain subject to market acceptance.
The company expects the proposed first lien term loan to have no financial maintenance covenants while the proposed revolving credit facility will contain a springing maximum first lien leverage ratio (8.10x) that will be tested when the revolver is more than 35% drawn. In addition, the first lien credit facility contains incremental facility capacity up to the greater of $80 million or 100% of consolidated EBITDA (shared between first lien and second lien facilities), plus an additional amount subject to either a 5.25x First Lien Net Leverage Ratio (pari passu secured debt), 7.0x Secured Net Leverage Ratio (junior debt), or if unsecured, either (i) 7.00x Total Net Leverage Ratio or (ii) subject to the 2.00x interest coverage ratio (such incremental debt may also be incurred on a leverage neutral basis if used to finance an acquisition or investment). There are leverage-based step-downs in the asset sale prepayment requirement to 50% and 0% if the First Lien Net Leverage Ratio is equal to or less than 4.75x and 4.25x, respectively.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody’s analysis has considered the effect on the performance of the corporate assets from the current weak U.S. economic activity and a gradual recovery for the coming months. Although economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody’s forecasts is unusually high. Moody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.
Turning to governance, the company will be majority-owned by private equity sponsors Altas Partners and Ares Management. Therefore, Moody’s expects the Unified’s financial policies to remain aggressive and favor shareholders over creditors. However, since the physicians also own a proportion of the company, they will also have some influence in deciding the company’s policies, albeit limited. The environmental component of ESG is not considered material to the overall credit profile of the issuer.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Unified successfully executes its rapid growth strategy, evidenced by expanded scale and diversity while maintaining its current level of profitability. A demonstrated track record of positive free cash flow, and sustained Moody’s-adjusted debt/EBITDA below 6.0 times would also support an upgrade.
Deterioration of operating performance, failure to integrate recent acquisitions, or weakening of liquidity could result in a rating downgrade. Quantitatively, ratings could be lowered if Moody’s-adjusted debt/EBITDA is sustained above 7.5 times.
Headquartered in Boca Raton, Florida, Unified Women’s Health (“Unified”) is a leading provider of practice management services to OB-GYN practices affiliated with approximately 1,300 physicians in over 600 locations across 13 states. It provides non-clinical administrative support services to medical practices. The company’s annual consolidated revenue is approximately $165 million (nearly $1 billion if the company’s affiliates revenue is included).
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
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Jean-Yves Coupin Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Jessica Gladstone, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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