New York, September 13, 2021 -- Moody's Investors Service, ("Moody's") affirmed the B2 Corporate
Family Rating (CFR) and B2-PD Probability of Default Rating of
CHG Healthcare Services, Inc. ("CHG"). Moody's also
assigned B1 rating to the company's new senior secured first lien credit
facilities. At the same time, Moody's changed the outlook
to negative from stable.
This follows CHG's announcement of refinancing its entire capital
structure with a new $1.58 billion senior secured 1st lien
term loan, a new $150 million senior secured 1st lien revolver
and a new $430 million secured 2nd lien notes (not rated).
The proceeds from the new debt instruments together with roughly $300
million of cash on hand will be used to pay a $560 million dividend
to shareholders, retire all outstanding debt, and pay transaction
fees and expenses.
The negative outlook reflects CHG's very high leverage pro forma
for the debt refinancing and uncertainties related to the pace of deleveraging.
Moody's estimates that CHG's pro forma debt/EBITDA will be
above 7 times but Moody's expects that CHG's leverage will
decline below 6 times in 2022. However, there are uncertainties
related to the pace of deleveraging as the company's business volumes
and earnings return to pre-pandemic levels.
Governance risk considerations are material to the rating. Moody's
views CHG's financial policies as aggressive reflecting its private
equity ownership.
Ratings affirmed:
Issuer: CHG Healthcare Services, Inc.
Corporate Family Rating at B2
Probability of Default Rating at B2-PD
Ratings Assigned:
$150 million senior secured first lien revolving credit facility
expiring in 2026 at B1 (LGD3)
$1.58 billion senior secured first lien term loan due 2028
at B1 (LGD3)
Outlook action:
Outlook changed to negative from stable
RATINGS RATIONALE
CHG's B2 CFR reflects its high leverage and niche focus in the locum tenens
business. With improving business volumes, Moody's expects
that debt/EBITDA will decline below 6.0 times in 2022 as the company
continues to recover from the negative impact of the coronavirus pandemic.
The company's CFR is also constrained by the company's aggressive financial
policies as evidenced by shareholder dividends.
The company's ratings benefit from good scale and leading market position
in the fragmented locum tenens market, positive long-term
fundamental demand trends in locum tenens, and a demonstrated track
record of good cash flow and earnings growth. CHG further benefits
from diversification of physician specialty and minimal concentration
across customers.
Moody's views CHG's liquidity as very good. Liquidity is
supported by $15 million of cash on hand and full availability
under the new $150 million revolver. Moody's expects CHG
to generate $125-$175 million in cash flow from operations
the next 12 months, which will easily cover $45-$55
million in capex, and approximately $16 million in mandatory
debt amortization.
The updated capital structure rated B1 is one notch above the B2 CFR reflecting
its senior position to the second lien debt (unrated) issued by CHG.
The proposed first lien term loan is expected to have no financial maintenance
covenants while the proposed revolving credit facility will contain a
springing maximum first lien net leverage ratio of 8.50:1.00
that will be tested when the revolver is more than 35% drawn.
The new credit facilities are expected to provide covenant flexibility
that if utilized could negatively impact creditor. Notable terms
include the following: (1) The proposed first lien credit facility
contains incremental facility capacity up to the sum of the greater of
$287 million and 100.0% of LTM Consolidated Adjusted
EBITDA, plus unlimited amounts up to either 5.50x first lien
net leverage ratio or the ratio immediately prior to such incurrence.
Amounts up to the greater of $143.5 million and 50.0%
of LTM Consolidated Adjusted EBITDA may be incurred with an earlier maturity
than the initial term loans; (2) There are no express "blocker"
provisions which prohibit the transfer of specified assets to unrestricted
subsidiaries; such transfers are permitted subject to carve-out
capacity and other conditions; (3) Non-wholly-owned
subsidiaries are not required to provide guarantees; dividends or
transfers resulting in partial ownership of subsidiary guarantors could
jeopardize guarantees, with no explicit protective provisions limiting
such guarantee releases, and (4) There are no express protective
provisions prohibiting an up-tiering transaction.
The above are proposed terms and the final terms of the credit agreement
may be materially different. Social and governance considerations
are material to the rating, given the substantial implications for
public health and safety. Although CHG faces no direct reimbursement
risk, pricing pressure placed on its clients as a result of regulatory
changes could partially flow through to the company as clients look to
reduce costs. This could also lead to weakened volume growth as
providers may become more prudent in their use of locum tenens.
Governance risk include CHG's aggressive financial policies reflecting
its private equity ownership
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be downgraded if CHG's financial policy becomes more
aggressive, liquidity deteriorates, demand for CHG's services/supply
of locum tenens physicians decline on a sustained basis. While
the historical level of dividend payout is already incorporated in Moody's
analysis, any outsized dividend payout will pressure the company's
ratings. Quantitatively, if the company's debt/EBITDA is
sustained above 6.0 times, the rating could be downgraded.
Moody's could upgrade the rating if CHG reduces its leverage on a sustained
basis such that total debt/EBITDA is maintained below 5.0 times.
An upgrade would also require the company to maintain strong organic earnings
growth and a good liquidity profile with growing levels of free cash flow.
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.
CHG is a provider of temporary healthcare staffing services to hospitals,
physician practices and other healthcare settings in the United States.
CHG derives the majority of its revenue from temporary physician staffing
but also provides travel nurse, allied health, and permanent
placement services. CHG reported $1.9 billion of
revenue for the twelve months ended June 30, 2021.
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
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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
be assigned subsequent to the final issuance of the debt, in each
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
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
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The Global Scale Credit Rating on this Credit Rating Announcement was
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for additional regulatory disclosures for each credit rating.
Kailash Chhaya, CFA
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
Ola Hannoun-Costa
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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