MOODY'S ASSIGNS PREFERRED HEALTH MANAGEMENT CORPORATION B1 SENIOR SECURED RATING
Ratings of MMM Holdings, Inc. and NAMM Holdings, Inc. Affirmed
New York, June 28, 2006 -- Moody's Investors Service has assigned a B1 senior debt rating to the
proposed $185 million term loan of Preferred Health Management
Corporation (PHMC). The term loan is being issued under an amendment
to the existing credit facility of Aveta Inc. (Aveta). The
ratings of the co-borrowers under the existing facility,
MMM Holdings, Inc. (MMM) and NAMM Holdings, Inc.
(NAMM) were both affirmed at B1. The outlook on all the ratings
According to Moody's, the proceeds of the bank loan will be used
by Aveta to fund the purchase of Preferred Medicare Choice, Inc.
(PMC), a licensed HMO operating in Puerto Rico and PHMC, an
administrative services company. The new facility will be guaranteed
by Aveta on the same basis as the existing facility and is considered
to be pari passu with the existing term loans. The existing facility
is secured with the pledge of the stock and assets of Aveta, as
well as the pledge of the stock of each of the borrowers and their regulated
subsidiaries and all assets of the non-regulated entities.
The new loan, which matures on the same date (August 2011) as the
existing term loans, will have the same pledge.
According to Moody's, PHMC and PMC will become subsidiaries
of MMM, alongside MMM Healthcare which also operates in Puerto Rico.
MMM Healthcare and PMC are the two largest providers of Medicare Advantage
products in Puerto Rico, with 118,000 members and 61,000
members, respectively. PMC offers its products in all 78
municipalities, with a stronger concentration in the western portion
of the island, compared to MMM Healthcare which is more concentrated
in the south and east. Combined, they will service approximately
75% of the Medicare Advantage enrolled population in Puerto Rico.
Moody's B1 senior secured bank credit facility rating is based on the
consolidated results of MMM and NAMM and reflects the companies' highly
leveraged capital structure, including the large amount of goodwill,
the companies' short operating history, dependence on the
Medicare Advantage product and geographic concentration in Puerto Rico,
as well as the uncertainty which surrounds the future financial prospects
of the Medicare program. Although the companies comply with the
regulatory capital requirements of each jurisdiction in which they operate,
Moody's believes that the targeted consolidated capital adequacy on an
NAIC risk-based capital (RBC) basis is relatively weak at approximately
50% of company action level. However, the rating agency
noted that the results for 2005 were solid with combined Medicare membership
growth in Puerto Rico exceeding 30% and operating margins of approximately
10%. The rating agency added that given the current Medicare
reimbursement rates for Puerto Rico and the combined marketing potential
of MMM Healthcare and PMC, similar results are expected during 2006.
Moody's ratings are based on the expectation that there are no changes
in the methodology used by the Centers for Medicare and Medicaid Services
(CMS) in determining the Medicare Advantage reimbursement rates,
that 100% of excess unregulated cash is used for debt repayment,
and the companies maintain a consolidated RBC of at least 50% of
company action level. Moody's also expects that there are no significant
changes to the financial covenants contained in the secured bank credit
facility and all covenants will be met or exceeded.
Moody's stated that the ratings could move up if NAIC RBC grows to 100%
of company action level, debt to EBIT falls below 2 times,
EBIT interest coverage is at least 5 times, there is additional
product and geographic diversification, and there is successful
integration with PMC measured by net margins of at least 4% and
organic membership growth in Puerto Rico of at least 10%.
However, if there is a significant adverse change in Medicare reimbursement
levels, if NAIC RBC falls below 50% of company action level,
if debt to EBIT exceeds 5 times, if EBIT to interest expense falls
below 3.5 times, or if a significant portion of debt is not
retired each year, then Moody's said, the ratings could be
MMM Healthcare offers Medicare Advantage products exclusively to eligible
participants in Puerto Rico. Moody's notes that the company currently
enjoys being the market leader in providing Medicare Advantage products
in Puerto Rico and being reimbursed at a very favorable rate from CMS,
which determines the rates that health benefit companies are paid to provide
a Medicare Advantage product. As a result of these circumstances,
Moody's stated, the company has been able to record impressive growth
and earnings margins since it was established in 2001. However,
while CMS reimbursement rates are in place for 2006, and rates for
2007 have been announced, rates for subsequent years are susceptible
to unpredictable shifts in Medicare policy emanating from Washington.
NAMM is a medical management company that operates in California and Illinois.
Its regulated operating subsidiary, PrimeCare Medical Network,
Inc., consists of 10 owned IPAs in Southern California that
contract with major health care benefit companies on a capitated basis
to provide medical care to commercial and Medicare members.
The following rating was assigned with a stable outlook:
Preferred Health Management Corporation -- senior secured
debt rating at B1
The following ratings were affirmed with a stable outlook:
MMM Holdings, Inc. -- senior secured debt rating
at B1; corporate family rating at B1;
NAMM Holdings, Inc. -- senior secured debt
rating at B1,
MMM Healthcare, Inc. -- insurance financial
strength rating at Ba2;
PrimeCare Medical Network, Inc. -- insurance
financial strength rating at Ba2.
Aveta, Inc. is headquartered in Fort Lee, NJ.
As of December 31, 2005, Aveta (as Aveta Holdings, LLC)
reported stockholders' equity of $38 million and approximately
130,500 Medicare members. For full year 2005, pro-forma
total revenues (including NAMM revenue for the full year) were $938
Moody's health insurance financial strength ratings (IFSR) are opinions
about the ability of life and health insurance companies to punctually
repay senior policyholder claims and obligations. Because IFSRs
are applied to operating life and health insurance companies, the
cash flows of which are regulated by the applicable state insurance department,
the IFSR is typically the highest rating within a corporate group.
Moody's corporate family rating is an opinion of a corporate family's
ability to honor all of its financial obligations and is assigned to a
corporate family as if it had a single class of debt and a single consolidated
legal entity structure.
For more information, visit our website at www.moodys.com/insurance
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service