New York, June 11, 2021 -- Moody's Investors Service, ("Moody's") affirmed
ADMI Corp.'s ("ADMI") B2 Corporate Family Rating, the B2-PD
Probability of Default Rating, and the B2 ratings on the first lien
senior secured term loan, first lien senior secured revolving credit
facility. Moody's also assigned a B2 rating to the company's
proposed $700 million add-on first lien senior secured term
loan. The rating outlook is changed from stable to negative.
The rating actions follow the announced incremental $700 million
term loan which combined with $150 million of cash from the balance
sheet will be used to fund a $835 million distribution to shareholders.
The affirmation of the B2 Corporate Family Rating reflects Moody's expectation
that the company will see leverage improvement following the shareholder
distribution given the ADMI's strong earnings outlook and the ability
to achieve synergies for the acquisition of CC Dental Implants Holding,
LLC ("ClearChoice") including procurement savings, SG&A
and marketing cost synergies. Moody's expects the company to generate
consistent positive free cash flow. Aspen Dental and ClearChoice
patient volumes have returned to near pre-coronavirus levels,
and the combined entity's performance to date in 2021 exceeded our
previous expectations. The affirmation is also supported by ADMI's
good liquidity and Moody's expectation that the company will generate
over $90 million in annual free cash flow and access to a $350
million revolving credit facility (which is being upsized by $100
million as part of the recapitalization).
The change in outlook to negative reflects the more aggressive nature
of ADMI's financial policies, a key governance issue.
ADMI will be meaningfully increasing leverage to fund a very large shareholder
distribution, which come only 6 months after the increased leverage
to fund the $1.135 billion acquisition of ClearChoice.
Leverage, pro-forma for the distribution and a full year
of ClearChoice, rises to 7.4x. Combined with higher
initial gross financial leverage, and the use of a significant portion
of its cash balances to fund the distribution, there is a greater
risk that debt/EBITDA will remain above 6.0x beyond the next 12-18
months. ADMI more weakly positioned to absorb any unexpected operating
setbacks or incremental debt and the company will need to continue to
execute at a high level to reduce leverage.
Moody's took the following rating actions:
ADMI Corp.
Ratings Affirmed:
Corporate Family Rating affirmed at B2
Probability of Default Rating affirmed at B2-PD
$350 million Gtd Senior Secured First Lien Revolving Credit Facility
affirmed at B2 (LGD3)
$920 million Gtd Senior Secured First Lien Term Loan affirmed at
B2 (LGD3)
$1,200 million Gtd Senior Secured First Lien Term Loan add-on
affirmed at B2 (LGD3)
Ratings assigned:
$700 million Gtd Senior Secured First Lien Term Loan add-on
assigned at B2 (LGD3)
Outlook action:
Outlook, changed to negative from stable
RATINGS RATIONALE
ADMI's B2 Corporate Family Rating reflects its elevated pro forma financial
leverage of approximately 7.4x following its shareholder distribution
and recent acquisition of ClearChoice. The rating also incorporates
the integration risk surrounding the acquisition. The rating is
constrained by aggressive de novo growth strategies and a high proportion
of self-pay revenues in both businesses. Moody's expects
that ADMI will resume new office openings and growth capital expenditures
as the risk from the coronavirus pandemic ebbs. The rating also
reflects the risk that growth slows and cash flow materially weakens from
recent levels as temporary demand surges normalize.
The rating is supported by the combined entity's strong market presence
as a differentiated dental service provider with few competitors of scale.
The ClearChoice acquisition has added scale, allowing ADMI to access
the fast-growing high-end full arch replacement market.
ADMI benefits from favorable industry dynamics, with a growing market
of edentulous patients, due to the aging population. Further,
ADMI has a national footprint and good geographic diversification.
ADMI has historically demonstrated positive trends in same-store
sales growth, and Moody's believes that there are opportunities
for referrals between ADMI and ClearChoice. Lastly, the expectation
of solid free cash flow is driven by generally low maintenance capital
expenditures and ClearChoice's revenue cycle which includes upfront payments
by patients.
Moody's anticipates that ADMI will maintain good liquidity post-closing,
supported by an upsized, undrawn $350 million revolving credit
facility and post-transaction cash balance of $143 million.
Moody's expects ADMI to generate about $94 million of free
cash flow in 2022, supported through there could be some variability
depending on changes in deferred revenue from the ClearChoice business.
ADMI and Aspen Dental practices face social risks such as the rising concerns
around the access and affordability of healthcare services. However,
Moody's does not consider the DSOs to face the same level of social risk
as many other healthcare providers because they rely less on government
and commercial insurers. That being said, ClearChoice faces
other social risks such as reputational risks given the highly consumer
driven model. Bad reviews on-line or bad publicity stemming
from a small number of unhappy clients could result in material harm to
the company's revenue and cash flow. From a governance perspective,
Moody's expects ADMI's financial policies to remain aggressive due to
its private equity ownership.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if the company's liquidity weakens or
if Moody's expects debt/EBITDA will be sustained above 6.0
times for an extended period. A material reduction in free cash
flow or additional debt funded transactions could also result in a ratings
downgrade. Additionally, if the ratings could be downgraded
if Aspen experiences material integration related disruption.
An upgrade is possible if Aspen Dental adopts more conservative financial
policies and maintains debt/EBITDA below 4.5 times. Additionally,
effective management of growth that resulted in improved profitability
and cash flow, and successful integration of ClearChoice could support
an upgrade.
ADMI provides business support services to its 895 affiliated dental offices
across 43 states, while Clearchoice serves a network of 70 affiliated
dental implant centers across 28 states. ClearChoice practices
are the leading national provider of fixed full-arch dental implants
and related treatments. The company is privately-held and
majority owned by Ares Management, LP and Leonard Green & Partners,
L.P., with the remaining 20% owned by American
Securities, management and dentists. The company's audited
financials do not consolidate the practice ownership program ("POP") practices.
As of March 31, 2021, excluding POP offices, ADMI generated
consolidated net patient revenues of approximately $900 million,
while the combined net patient revenues including POP offices was approximately
$2.3 billion for the same period.
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
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same series, category/class of debt, security or pursuant
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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
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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Jaime Johnson
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
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JOURNALISTS: 1 212 553 0376
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