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Rating Action:

Moody's announces rating actions on 9 healthcare staffing, radiology and imaging companies

14 Apr 2020

New York, April 14, 2020 -- Moody's Investors Service, ("Moody's") today announced rating actions on 9 US healthcare services companies with businesses in physician staffing, travel nurse, locum tenens, radiology and diagnostic imaging to reflect the expected impact of business disruption caused by the coronavirus outbreak.

As providers of various types of healthcare services, these companies are exposed to declining demand for their services due to factors including the postponement of elective procedures, lower emergency department volumes and closure of many non-emergent healthcare facilities.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The US healthcare services sector has been one of the sectors affected by the shock given government and health association guidance to postpone all non-emergent healthcare services and take self-isolation measures.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's actions reflect the impact of this risk, which has grown in recent weeks.

Some healthcare companies also face a different type of social risk. Several legislative proposals have been introduced in the US Congress that aim to eliminate or reduce the impact of surprise medical bills. Surprise medical bills are received by insured patients who receive care from providers outside of their insurance networks, usually in emergency situations. Moody's does not expect passage of legislation by the Congress in the near term as long as dealing with the coronavirus crisis remains a priority. Nevertheless, the topic of surprise medical bills is likely to resurface once the crisis stabilizes. Further, many healthcare staffing companies have been under pressure to reduce out-of-network billing and have experienced aggressive negotiating tactics from private insurance companies. These dynamics will continue to result in downward pricing pressure for many healthcare staffing companies. These risks are also reflected in some of today's actions.

The details of healthcare services companies' rating actions are discussed below (in alphabetical order of the companies' names).

RATINGS RATIONALE

Issuer: AMN Healthcare, Inc.

Downgraded:

Corporate Family Rating (CFR) to Ba2 from Ba1

Probability of Default Rating (PDR) to Ba2-PD from Ba1-PD

Global unsecured notes due 2024 and 2027 to Ba3 (LGD5) from Ba2 (LGD5)

Unchanged:

Speculative Grade Liquidity Rating at SGL-1

Outlook action:

Outlook remains negative

The downgrade of AMN Healthcare, Inc.'s ("AMN") ratings reflects Moody's expectations that the company's deleveraging efforts will be delayed by the impact of the coronavirus spread, which will likely keep its debt/EBITDA above 3.5 times in the next 12 to 18 months. AMN's leverage was already elevated following the acquisition of Stratus Video Holding Company (Stratus) in early 2020. Moody's estimates that adjusted debt/EBITDA approximated 3.7x on a pro-forma basis for the acquisition. With the postponement of elective procedures, lower emergency-related volumes and closure of many non-emergent healthcare facilities, Moody's expects that the demand for the company's travel nurses, allied solutions and locum tenens (temporary physician staffing) businesses will decline modestly in the near term.

Given that a large portion of AMN's costs (travel nurse and locum tenens physicians' compensation) are variable, Moody's believes that the company will be able to partially mitigate the negative impact more than many other healthcare staffing companies, amidst declining demand for its services in the next several weeks. Moreover, the company will also likely benefit from an increase in healthcare staffing demand in selected specialties in geographic areas that are severely affected by coronavirus. Without these mitigating factors, the company's ratings could have been lower.

The company's Speculative Grade Rating of SGL-1 remains unchanged and reflects the company's very good liquidity, supported by $83 million of cash and $383 million available under its $400 million revolver as of 12/31/2019. Moody's believes that AMN will remain cash flow positive in upcoming quarters and will be able to cover all its fixed costs under most coronavirus scenarios ($2.5 million mandatory annual debt amortization, $30-$40 million annual interest expense and $25-$50 million of annual CAPEX) in the next 12 months with the available liquidity at hand.

The negative outlook reflects the uncertainties surrounding the extent and timing of recovery of the lost business as a result of coronavirus outbreak.

In terms of governance risk, as a provider of clinical labor solutions, the company is exposed to reputational and compliance risks if the traveling staff is involved in malpractice or fraud. As a publicly-traded company, AMN is subject to rigorous standards in terms of transparency, disclosures, management's effectiveness, accountability and compliance.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade in the near term is unlikely. However, if the company stabilizes its business volume amidst the coronavirus outbreak and reverts to generating free cash flow comparable to FY 2019, Moody's could consider a rating upgrade. Further, debt/EBITDA below 3.0 times could support upward rating pressure.

The ratings could be downgraded if Moody's expects AMN's debt/EBITDA to remain above 3.5 times beyond recovery from the coronavirus crisis. The ratings could also be downgraded if earnings and cash flow decline materially due to an economic slowdown. Furthermore, a weakening of liquidity or a material increase in leverage due to debt-funded acquisitions or share repurchases could also result in a downgrade.

AMN is the largest provider of workforce solutions and staffing services to healthcare facilities in the United States. The company's services include managed services programs, vendor management systems, recruitment process outsourcing and consulting services. The company's Nurse and Allied Solutions segment accounted for 64% of revenue in fiscal 2019, the Locum Tenens Solutions segment accounted for 15% of revenue and the Other Workforce Solutions (physician permanent placement, executive search, etc.) segment accounted for 21% of revenue. The company is publicly traded, and its revenues exceed $2.2 billion.

Issuer: CHG Healthcare Services

Affirmed:

Corporate Family Rating at B2

Probability of Default Rating at B2-PD

Senior secured 1st lien revolving credit facility expiring in 2023 at B2 (LGD3)

Senior secured 1st lien term loan due 2023 at B2(LGD3)

Outlook action:

Outlook changed to negative from stable

The change of outlook to negative reflects Moody's view that the company's revenues and profits will decline in the coming weeks as the volumes of elective procedures and emergency-related visits decline. The negative outlook also reflects the uncertainties surrounding the extent and timing of recovery of the lost business as a result of the coronavirus outbreak. Moody's estimates that the company's adjusted debt/EBITDA was 5.2 times as of September 30, 2019 and will rise temporarily due to short-term weakness in demand.

The affirmation of the B2 CFR reflects Moody's view that a large portion of CHG Healthcare Services' ("CHG") costs (locum tenens physicians' compensation) are variable, and Moody's believes that the company will be able to partially mitigate the negative impact more than many other healthcare staffing companies, amidst declining demand for its services in the next several weeks. Moreover, the company will benefit from increased demand for physician services when deferred elective procedures ramp up after the stabilization of the outbreak. Without these mitigating factors, the company's ratings could have been lower. The affirmation of the ratings is also supported by the company's good liquidity.

Liquidity is supported by $155 million cash and $49 million available under its $75 million revolver as of 9/30/2019. Moody's expects that the company has drawn the majority of its revolver in the first quarter of 2020, or otherwise, it will do so in the coming weeks to deal with the disruption caused by the spread of the coronavirus. Moody's believes that CHG will remain cash flow positive in the next 12 months despite weak upcoming 1-2 quarters and it will be able to cover all its fixed costs under most coronavirus scenarios ($16.4 million annual mandatory debt amortization and $70-$80 million annual interest payment and $35-$40 million CAPEX) with available liquidity at hand.

CHG has grown rapidly in recent years. Any company that experiences such rapid growth is subject to governance risks. These risks include management oversight of rapidly expanding operations, operational and system bandwidth challenges, and cultural or due diligence challenges. Additionally, the company's financial policies are expected to remain aggressive reflecting its ownership by private equity investors (Leonard Green & Partners, L.P, Ares Management LLC and Starr Investment Holdings, LLC).

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 or the supply of locum tenens physicians decline on a sustained basis. Specifically, if Moody's expects the company's debt/EBITDA to be 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 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.

Issuer: Medical Solutions Holdings, Inc.

Downgraded:

Corporate Family Rating to B3 from B2

Probability of Default Rating to B3-PD from B2-PD

Senior secured 1st lien revolving credit facility expiring in 2022 to B2 (LGD3) from B1 (LGD3)

Senior secured 1st lien term loan due 2024 to B2 (LGD3) from B1 (LGD3)

Senior secured 2nd lien term loan due 2025 to Caa2 (LGD6) from Caa1 (LGD6)

Outlook action:

Outlook remains negative

The downgrade of Medical Solutions Holdings, Inc.'s ("Medical Solutions") ratings reflects Moody's expectations that the company's deleveraging efforts could be delayed by the impact of the coronavirus spread, which will keep its debt/EBITDA above 6.5 times in the next 12 to 18 months. Leverage was already elevated following the debt-funded acquisition of Omaha, Nebraska-based C&A Industries, Inc (unrated). Moody's estimates that the company's pro forma debt/EBITDA exceeded 7.0 times following the acquisition. With the postponement of elective procedures, lower emergency-related volumes and closure of many non-emergent healthcare facilities, Moody's expects that the demand for the company's core travel nurse business will decline modestly in the near-term.

Given that a large portion of Medical Solutions' costs (travel nurse compensation) are variable, Moody's believes that the company will be able to partially mitigate the negative impact more than many other healthcare staffing companies, amidst declining demand for its services in the next several weeks. Moreover, the company will also likely benefit from an increase in healthcare staffing demand in selected specialties in geographic areas that are severely affected by coronavirus. Without these mitigating factors, the company's ratings could have been lower.

The negative outlook reflects the uncertainties surrounding the extent and timing of recovery of the lost business as a result of coronavirus outbreak.

The company's adequate liquidity is supported by $16 million cash and $55 million available under its $55 million revolver as of 9/30/2019. This revolver was upsized to $75 million in the fourth quarter of 2019 when Medical Solutions acquired C&A Industries, Inc. The company has proactively drawn its entire revolver in the first quarter of 2020 to deal with the possible disruption caused by the spread of the coronavirus. Moody's believes that Medical Solutions will remain cash flow positive in the next 12 months despite weak upcoming 1-2 quarters and it will be able to cover all its fixed costs under moderate coronavirus scenarios ($6.3 million mandatory annual debt amortization, $55-$60 million annual interest payment and $10-$15 million CAPEX) with available liquidity at hand. The company may face liquidity challenges if the coronavirus outbreak persists for longer than 6-12 months.

From a governance perspective, as a provider of clinical labor solutions, the company is exposed to reputational and compliance risks if the traveling staff is involved in malpractice or fraud. Additionally, the company's financial policies are expected to remain aggressive reflecting its ownership by a private equity investor (funds owned by TPG Growth).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if the company faces challenges in integrating the acquisition or fails to achieve expected synergies. Weakening operating performance due to poor execution or reduced demand could also pressure the rating. At any point in time, if Moody's believes that the company will not be able to sustain its debt/EBITDA below 7.0 times within the next 12-18 months, the rating could be downgraded.

An upgrade in the near-term is unlikely. However, effective integration of C&A and realization of cost savings, as well as competitive benefits related to the improved scale and diversity could support upward rating pressure. Specifically, the ratings could be upgraded if the company reduces its debt/EBITDA below 6.0 times on a sustained basis.

Medical Solutions is a leading provider of contingent clinical labor solutions to hospitals across the US. The company places contracted nurses on assignment at hospitals, and in some cases, administers the entire short-term staffing needs (nurses and other specialists) of its clients. Medical Solutions also provides nursing solutions during labor disputes. Proforma annual revenues (including C&A Industries acquisition) are approximately $1.0 billion. The company is owned by funds managed by TPG Growth.

Issuer: MEDNAX, Inc.

Downgraded:

Corporate Family Rating to B1 from Ba2

Probability of Default Rating to B1-PD from Ba2-PD

Global unsecured notes due 2023 and 2027 to B1 (LGD4) from Ba2 (LGD4)

Lowered:

Speculative Grade Liquidity Rating to SGL-2 from SGL-1

Outlook action:

Outlook changed from rating under review to stable

The downgrade of MEDNAX, Inc.'s ("MEDNAX") ratings reflects Moody's expectations that the company's leverage will remain well above its historical range of 2.5x -- 3.5x for the foreseeable future. This results from continued pressure on profitability as well as an anticipated negative impact stemming from its ongoing dispute with UnitedHealth Group Incorporated ("UnitedHealth") (A3 long-term issuer rating), combined with the impact from the coronavirus. These factors will likely result in debt/EBITDA remaining above 4.5 times over the next 12 to 18 months. With the postponement of elective procedures, lower emergency-related volumes and closure of many non-emergent healthcare facilities, Moody's expects that the demand for some of the company's businesses, especially anesthesiology services, will decline materially in the near term.

Given that MEDNAX has limited flexibility to reduce its expenses, Moody's believes that the company will struggle to control the cash outflow amidst a temporary but sharp decline in demand for the company's services. The company has announced compensation cuts for its management, which could extend to its professional physicians too. Nevertheless, Moody's believes that the company is limited in its ability to significantly reduce physician compensation as it could result in workforce attrition and risk the company's ability to benefit from the ramp-up of demand for elective procedures when the crisis wanes. Moody's estimates that the company's quarterly free cash flow will be materially lower (or even negative) in the second and third quarters of 2020. This will make the company reliant on revolver borrowings to sustain its operations in those two quarters.

The change of outlook to stable reflects sufficient headroom within the B1 CFR to absorb the uncertainties surrounding the extent and timing of recovery of the lost business as a result of the pandemic.

The lowering of the company's Speculative Grade Liquidity rating to SGL-2 from SGL-1 reflects a combination of Moody's expectation of materially lower free cash flow in the next 1-2 quarters as well as reduced availability under its revolving credit facility. Based on an amendment to the credit agreement on March 25, 2020, the company's available revolving facility amount was reduced to $900 million (from the original $1.2 billion) until the third quarter of 2021. The company's SGL-2 rating is supported by $305 million of cash and $580 million available under its amended revolver. Moody's expects that the company will draw a majority of its revolver in the coming months to deal with the disruption caused by the spread of coronavirus. Moody's believes that MEDNAX will have sufficient liquidity to cover all its fixed costs in the next 12 months under most coronavirus scenarios ($120-$130 million annual interest payment and $30-35 million CAPEX) with available liquidity at hand. The company could experience negative free cash flow in one or two upcoming quarters.

As a provider of physician staffing services, MEDNAX faces significant social risk. Several legislative proposals have been introduced in the US Congress that aim to eliminate or reduce the impact of surprise medical bills. Surprise medical bills are received by insured patients who receive care from providers outside of their insurance networks, usually in emergency situations. As a publicly-traded company, MEDNAX is subject to rigorous governance standards in terms of transparency, disclosures, management's effectiveness, accountability and compliance.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if MEDNAX faces continued reimbursement, volume, or payor mix pressures that will weaken operating performance. Quantitatively, ratings could be downgraded if Moody's determines that the company's debt/EBITDA will be sustained above 5.0 times.

An upgrade in the near term is unlikely. Over the longer-term, the ratings could be upgraded if MEDNAX effectively executes its plan to reduce its costs to improve profitability. Quantitatively, ratings could be upgraded if debt/EBITDA is sustained below 4.0 times.

Based in Sunrise, FL, MEDNAX, Inc. is a leading provider of physician services including newborn, anesthesia, maternal-fetal, radiology and teleradiology, pediatric cardiology and other pediatric subspecialty services. The company's national network is comprised of more than 4,325 affiliated physicians who provide clinical care in 39 states and Puerto Rico. MEDNAX also provides teleradiology services in all 50 states, the District of Columbia and Puerto Rico through a network of affiliated radiologists. Revenues are approximately $3.5 billion.

Issuer: Onex TSG Intermediate Corp.

Ratings placed under review for downgrade:

Corporate Family Rating at B2

Probability of Default Rating at B2-PD

Senior secured 1st lien revolving credit facility expiring in 2022 at B1 (LGD3)

Senior secured 1st lien term loan due 2022 at B1 (LGD3)

Senior secured 2nd lien term loan due 2023 at Caa1 (LGD6)

Outlook action:

Outlook changed to rating under review for downgrade from stable

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings were placed under review for downgrade due to an expected increase in leverage from the company's updated relationship with UnitedHealth Group Incorporated ("UnitedHealth") (A3 long-term issuer rating), which Moody's expects will pressure profitability. This is happening at a time that Moody's also expects the company's business to be severely impacted by the impact of coronavirus.

Moody's review will focus on the potential range of outcomes from the modified contract terms as well as any actions the company may take to offset the impact of any revised terms. Moody's review will also focus on the evolving impact of the coronavirus on Onex TSG Intermediate Corp.'s ("ONEX TSG") business and liquidity. Moody's estimates that the company's leverage was approximately 4.7 times at the end of FY 2019. With the postponement of elective procedures, lower emergency department volumes and closure of many non-emergent healthcare facilities, Moody's expects that the demand for the company's businesses will decline materially in the near term. Given that Onex TSG has limited flexibility to reduces its expenses, Moody's believes that the company will struggle to control the cash outflow amidst a temporary but sharp decline in demand for the company's services.

The company's good liquidity is supported by $108 million cash at the end of 2019 and $55 million available under its $75 million revolver as of 3/31/2020. Moody's believes that ONEX TSG will have sufficient liquidity to cover all its fixed costs in the next 12 months under most coronavirus scenarios ($5.3 million mandatory annual debt amortization, $60-65 million annual interest payment and $10-$15 million CAPEX) with available liquidity at hand. The company could experience negative free cash flow in one or two upcoming quarters.

As a provider of emergency room staffing to hospitals, Onex TSG faces high social risk. Several legislative proposals have been introduced in the US Congress that aim to eliminate or reduce the impact of surprise medical bills. Additionally, the company's financial policies are expected to remain aggressive reflecting its ownership by a private equity investor (Onex Partners Manager LP).

An upgrade in the near term is unlikely. Over the longer-term, the ratings could be upgraded if the company can grow its revenue base while expanding its product line. More specifically, if the company's debt/EBITDA is expected to be sustained below 4.5 times, along with consistent positive free cash flow, the rating could be upgraded.

The ratings could be downgraded if the company experiences a severe deterioration in liquidity, a negative change in reimbursement rates or loss of key customers. Quantitatively ratings could be downgraded if debt/EBITDA is expected to be sustained above 6 times.

Headquartered in Lafayette, LA, Onex TSG Intermediate Corp., doing business as SCP Health (formerly Schumacher Clinical Partners), is a national provider of integrated emergency medicine, hospital medicine services and healthcare advisory services. SCP Health operates in 30 states with roughly 1,700 employees and 7,000 clinicians. Onex TSG's net revenue is approximately $1.4 billion. Onex TSG is owned by private equity sponsor Onex Partners Manager LP through the parent holding company - Clinical Acquisitions Holdings LP.

Issuer: Radiology Partners, Inc.

Downgraded:

Corporate Family Rating to Caa1 from B3

Probability of Default Rating Caa1-PD from B3-PD

Senior secured 1st lien revolving credit facility expiring in 2024 to B3 (LGD3) from B2 (LGD3)

Senior secured 1st lien term loan due 2025 to B3 (LGD3) from B2 (LGD3)

Global unsecured notes due 2028 to Caa3 (LGD5) from Caa2 (LGD5)

Outlook action:

Outlook remains stable

The downgrade of Radiology Partners, Inc.'s ("Radiology Partners") ratings reflects its very high financial leverage, aggressive roll-up strategy and history of negative free cash flow. These attributes will make the company more vulnerable to the financial impact of the coronavirus spread. Moody's estimates that the company's debt/EBITDA, including acquisition-related pro forma adjustments was approximately 8.0 times at September 30, 2019. With the postponement of elective procedures, lower emergency-related volumes and closure of many non-emergent healthcare facilities, Moody's expects that the demand for the company's radiologists' services will decline materially in the near term. Further, the company will likely need to increase debt through revolver borrowings that will permanently increase its financial leverage. The company will have limited ability to repay debt unless it significantly changes its financial policies, including refraining from acquisitions.

Despite the very high leverage, the company has good liquidity. Moody's estimates $525 million of cash after drawing almost the entire $300 million revolver at the end of March 2020. While the company has a substantial amount of cash, the use of cash to mitigate coronavirus profit declines instead of investing in EBITDA generating investments will push the company's leverage higher. Moreover, if the coronavirus outbreak fails to subside within a relatively short period, the company will be unable to earn targeted returns on its recent acquisitions.

Moody's recognizes that Radiology Partners' available liquidity will comfortably cover all its financial obligations. The company will have lower cash flow on a quarterly basis in some upcoming quarters, but it will be able to cover all its fixed costs under most coronavirus scenarios ($15.8 million mandatory annual debt amortization, $120-$130 million annual interest payment and $30-40 million CAPEX) in the next 12 months. However, the key driver for the rating downgrade was the company's very high leverage, which will worsen as a result of the pandemic.

The stable outlook reflects the company's good liquidity and increased cushion to absorb operating setbacks at the Caa1 rating.

Moody's expects that the company's financial policies will remain aggressive, reflecting its partial ownership by private-equity investors (New Enterprise Associates, Future Fund and Starr Investment Holdings, LLC). Radiology Partners is also partly owned by physicians, which aligns the doctors' incentives but also adds complexity from a governance perspective. Over time Radiology Partners may need to provide liquidity to doctors as they retire, which raises the risk of cash outflows. Radiology is a sector of healthcare that has social risk given that radiology services can give rise to surprise medical bills, which are currently an area of intensive political focus. That said, the company's direct exposure to potential surprise medical bill legislation is limited given Radiology Partners has a limited number of medical claims that are both out-of-network and balance billed to patients. However, the company remains exposed to pricing pressure as an indirect result of some surprise medical bill proposals that would use median in-network rates as a benchmark.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be downgraded if the company's liquidity and/or operating performance deteriorates, it fails to effectively integrate acquired practices, or if its financial policies become more aggressive.

Ratings could be upgraded if Radiology Partners materially grows its reported earnings by smoothly integrating newly acquired practices. A reduction in the pace and size of acquisitions along with significant improvement in free cash flow would also support an upgrade. Additionally, Moody's would consider an upgrade if the company's adjusted debt/EBITDA is sustained below 7.5 times.

Headquartered in El Segundo, CA, Radiology Partners is one of the largest physician-led and physician-owned radiology practices in the U.S. Services provided include diagnostic and interventional radiology. The company is 21.1% owned by New Enterprise Associates, 10.9% by Future Fund, 28.7% by Starr Investment Holdings, LLC and the rest by physicians, management and other investors. Pro forma revenues are approximately $1.4 billion.

Issuer: RadNet Management, Inc.

Ratings placed under review for downgrade:

Corporate Family Rating at B2

Probability of Default Rating at B2-PD

Senior secured 1st lien revolving credit facility expiring in 2023 at B1(LGD3)

Senior secured 1st lien term loan due 2023 at B1(LGD3)

Lowered:

Speculative Grade Liquidity Rating to SGL-3 from SGL-2

Outlook action:

Outlook changed to rating under review for downgrade from stable

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings were placed under review due to Moody's expectations that the company's profits will decline materially in the coming weeks as the demand for diagnostic services declines in line with lower volumes of elective procedures, lower emergency department volumes and closure of many non-emergent healthcare facilities. Moody's review will focus on the company's strategy to reduce expenses, conserve cash and preserve liquidity, especially if the coronavirus outbreak is prolonged.

The company's adequate liquidity is supported by $105 million cash and $12.5 million available under its $137.5 million revolver as of April 3, 2020. Moody's believes that RadNet will remain cash flow positive in the next 12 months despite weak upcoming 1-2 quarters and it will be able to cover all its fixed costs under moderate coronavirus scenarios ($75-$85 million annual interest payment, $39 million mandatory annual debt amortization and $40-$80 million CAPEX) with available liquidity at hand. The company could experience negative free cash flow in one or two upcoming quarters.

Moody's notes that RadNet has the flexibility to defer some of its CAPEX to conserve its liquidity. While a portion of the company's volumes will decline due to the deferral of elective procedures, Moody's believes that the company will have some offsetting increases in volumes for diagnosis and treatment of coronavirus in its large markets -- NY, NJ CA and MD -- all heavily affected by the coronavirus outbreak at present.

Medical imaging service is a sector of healthcare that has social risk given that it can give rise to surprise medical bills, which are currently an area of intensive political focus. As a publicly-traded company, RadNet is subject to rigorous governance standards in terms of transparency, disclosures, management's effectiveness, accountability and compliance.

An upgrade in the near term is unlikely. Over the longer-term, the ratings could be upgraded if the company increases its scale and geographic diversification and free cash flow. Additionally, Moody's would consider an upgrade if the company's adjusted debt/EBITDA is sustained below 4.5 times. Furthermore, the expectation of a disciplined growth strategy and a stable reimbursement environment is needed for an upgrade.

The ratings could be downgraded if the company's liquidity position deteriorates. If debt/EBITDA is expected to remain above 6.0 times, there could be a downgrade.

RadNet Management, Inc. (a wholly-owned subsidiary of publicly-traded RadNet, Inc.) is a provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States. The company has a network of 340 owned and/or operated outpatient imaging centers primarily located in California, Maryland, Delaware, New Jersey, and New York. The company's services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. Net revenues are around $1.2 billion.

Issuer: Sound Inpatient Physicians, Inc.

Affirmed:

Corporate Family Rating at B1

Probability of Default Rating at B1-PD

Senior secured 1st lien revolving credit facility expiring in 2023 at Ba3 (LGD3)

Senior secured 1st lien term loan due 2025 at Ba3 (LGD3)

Senior secured 2nd lien term loan due 2026 at B3 (LGD5)

Outlook action:

Outlook changed to negative from stable

The change of outlook to negative reflects Moody's view that the company's revenues and profits will decline in the coming weeks as the volumes of elective procedures and emergency-relate visits decline. The negative outlook also reflects the uncertainties surrounding the extent and timing of recovery of the lost business as a result of the coronavirus outbreak. Moody's recognizes that hospitalist-focused businesses will experience increased coronavirus patient volume. However, it is unclear to what extent the volume increases of coronavirus patients will offset the lost business in other areas.

The affirmation of the B1 CFR reflects Sound Inpatient Physicians, Inc.'s ("Sound") focus on its Bundled Payments of Care Improvements Advanced (BPCIA) business which enables it to be better aligned with the needs of hospitals and payors. Many other physician staffing/services companies are primarily focused on fee-for-service business, which will likely see greater volume declines amidst the coronavirus crisis compared to BPCIA. The affirmation of Sound's B1 CFR also reflects OptumHealth's strategic ownership stake in the company. In addition, the ownership of a material stake in the company by a key customer also partially mitigates the risk of select contract losses.

The company's adequate liquidity is supported by $59 million cash and $72 million available under its $75 million revolver as of September 30, 2019. Moody's believes that Sound Inpatient will remain cash flow positive in the next 12 months despite weak upcoming 1-2 quarters and it will be able to cover all its fixed costs under moderate coronavirus scenarios ($6.1 million mandatory annual debt amortization and $60-$65 million annual interest payment and $5-$10 million CAPEX) with available liquidity at hand. The company may face liquidity challenges if the coronavirus outbreak persists for longer than 6-12 months.

As a provider of hospitalist staffing services, Sound faces high social risk. Several legislative proposals have been introduced in the US Congress that aim to eliminate or reduce the impact of surprise medical bills. The company is also exposed to unfavorable changes to government payor reimbursements and regulatory changes. Additionally, the company's financial policies are expected to remain aggressive reflecting its ownership by a private equity investor (Summit Partners).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if the company engages in material debt-funded acquisitions or shareholder distributions. A downgrade could also occur if earnings or liquidity deteriorate or the company is expected to sustain debt/EBITDA above 6.0 times.

The ratings could be upgraded if the company materially grows its scale and achieves greater business diversification. Additionally, Sound would need to reduce its debt/EBITDA below 4.5 times and generate consistently positive free cash flow before Moody's would consider an upgrade.

Sound Inpatient Physicians, Inc. is a provider of physician services in acute, post-acute, emergency medicine, and intensivist facilities through its wholly-owned subsidiaries and affiliated companies. Sound's principal business is to provide hospitalist services to hospitals and health plans designed to improve the well-being of patients while reducing their associated costs through the management of medical care. Pro forma revenues for fiscal 2019 are roughly $1.5 billion. The company is primarily owned by private equity sponsor Summit Partners and UnitedHealth Group Inc.'s OptumHealth.

Issuer: U.S. Anesthesia Partners, Inc.

Downgraded:

Corporate Family Rating to B3 from B2

Probability of Default Rating to B3-PD from B2-PD

Senior secured 1st lien revolving credit facility expiring in 2022 to B2 (LGD3) from B1 (LGD3)

Senior secured 1st lien term loan due 2024 to B2 (LGD3) from B1 (LGD3)

Senior secured 2nd lien term loan due 2025 to Caa2 (LGD6) from Caa1 (LGD6)

Outlook action:

Outlook remains negative

The downgrade of U.S. Anesthesia Partners, Inc.'s ("USAP") ratings reflects Moody's expectations that the company's leverage will increase due to an anticipated negative impact on profitability due to its dispute with UnitedHealth Group Incorporated ("UnitedHealth") (A3 long-term issuer rating). This, along with the impact from the coronavirus pandemic, will likely result in debt/EBITDA being sustained above 6.5 times over the next 12 to 18 months. Moody's estimates that the company's leverage was approximately 6.0 times at the end of FY 2019. With the postponement of elective procedures, lower emergency-related volumes and closure of many non-emergent healthcare facilities, Moody's expects a severe decline in demand for the company's core anesthesia businesses.

Given that a material portion of the company is owned by physicians whose compensation have a large variable element, Moody's believes that the company will be better positioned than some other staffing companies to cut expenses amidst a temporary but sharp decline in demand for the company's services. Without this mitigating factor, the company's ratings could have been lower. Nevertheless, Moody's estimates that the company's quarterly free cash flow will be negative, at least for the second quarter of 2020. This will make USAP reliant on revolver borrowings to sustain its operations in the coming months.

The company's good liquidity is supported by $144 million of cash and $200 million available under its revolver as of 12/31/2019. Moody's expects that the company will draw the majority of its revolver to deal with reduced free cash flow while the disruption related to coronavirus persists. Moody's believes that USAP will have sufficient liquidity to cover all its fixed costs in the next 12 months under most coronavirus scenarios ($16 million mandatory annual debt amortization, $95-$105 million annual interest payment and ~$6 million CAPEX) in the next 12 months with available liquidity at hand. The company could experience negative free cash flow in one or two upcoming quarters.

The negative outlook also reflects the uncertainties surrounding the extent and timing of recovery of the lost business as a result of the coronavirus outbreak.

As a provider of physician staffing services, USAP faces significant social risk. Several legislative proposals have been introduced in the US Congress that aim to eliminate or reduce the impact of surprise medical bills. Surprise medical bills are received by insured patients who receive care from providers outside of their insurance networks, usually in emergency situations. USAP has grown rapidly in recent years through acquisitions. Any company that experiences such rapid growth through a roll-up strategy is subject to governance risks. These risks include management oversight of a rapidly expanding operation, operational and system bandwidth challenges, and cultural or due diligence challenges. Additionally, the company's financial policies are expected to remain aggressive reflecting its ownership by a private equity investor (Welsh, Carson, Anderson & Stowe, Berkshire Partners, GIC and Heritage Group).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be downgraded if the company's liquidity weakens, if it cannot significantly reduce variable expenses in order to conserve liquidity or if the coronavirus impacts persist for an extended period of time. Beyond coronavirus, if operating performance weakens for reasons including the loss of profitable contracts, or if unfavorable regulatory changes significantly impact the company, the ratings could be downgraded.

An upgrade in the near-term is unlikely. Over the longer term, ratings could be upgraded if the company executes its growth strategy, resulting in greater scale and geographic diversification. Ratings could also be upgraded if the company's financial policies become more conservative, such that debt/EBITDA is sustained below 6 times.

U.S. Anesthesia Partners provides anesthesia services through around 4,900 anesthesia providers in roughly 1,065 facilities in 11 major geographies across 9 US states. Net revenues were approximately $1.9 billion in fiscal 2019. The company is 46% owned by approximately 1,300 physician partners and management. The remaining share of the company is owned by Welsh Carson Anderson & Stowe (22%), Berkshire Partners (20%), GIC, LP (11%), and Heritage Group (1%).

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 outcome 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.

Please see the ratings tab on the issuer/entity page on www.moodys.com 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

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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