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13 Sep 2010
$230 million of new debt rated
New York, September 13, 2010 -- Moody's Investors Service ("Moody's") assigned a B2
Corporate Family Rating to ADMI Acquisitions LLC, a newly formed
entity to facilitate the acquisition of AA Dental Management Holdings,
LLC. Upon consummation of the acquisition, Aspen Dental Management,
Inc. ("Aspen") will become the borrower of the new
credit facility. Moody's assigned a B1 to the proposed $35
million revolving credit facility and to the $150 million First-Out
portion of the first lien senior secured term loan. Moody's
assigned a Caa1 rating to the $45 million Last-Out portion
of the term loan. The outlook for the ratings is stable.
The proposed credit facility will be used in part to finance the acquisition
of Aspen by Leonard Green & Partners, L.P. ("LGP")
from the current equity sponsor, Ares Management LLC for $547.5
million. LGP is contributing approximately $250 million
of common equity and Ares and management are rolling over approximately
$117 million of equity.
All ratings are subject to review of final documentation.
$35 million senior secured revolving credit facility, B1,
$150 million senior secured First-Out term loan, B1,
$45 million senior secured Last-Out term loan, Caa1,
Corporate Family Rating, B2
Probability of Default Rating, B2
The outlook is stable.
This is the first time we have rated Aspen Dental.
The B2 Corporate Family Rating reflects the company's limited absolute
size, based on revenue and earnings, and the significant leverage
that is being incurred as a result of the company's leveraged buyout.
The company's aggressive de novo growth strategy is expected to
continue to constrain profitability margins and free cash flow.
However, the rating is supported by the company's flexibility
to reduce de novo growth if necessary, and its ability to then generate
solid free cash flow that could be used to deleverage. In addition,
the rating is supported by the significant equity contribution (65%
of total capitalization) by the financial sponsors and management.
The credit profile benefits from the large population of people that are
underserved in terms of access to dental care, which we believe
supports Aspen's growth prospects. A risk to the growth story
is the high proportion of self-pay revenues, as Aspen's
patients typically are responsible for a large portion of their bill and
rely heavily on third party financing arrangements to pay for services.
Aspen is therefore exposed to changes in consumer spending and credit
availability trends. The ratings are also constrained by the risk
of reputational damage of the Aspen brand, and regulatory and legal
risks associated with the business model.
If over time, the company were to demonstrate stable, positive
same store sales growth and a more moderate growth strategy such that
adjusted leverage were to be sustained below 4.0 times and free
cash flow to debt exceeded 10%, Moody's could change
the outlook to positive or upgrade the ratings. If Aspen,
or the DPM industry in general, were to face an escalation in regulatory
or legal risk, Moody's could change the outlook to negative
or downgrade the ratings. The rating or outlook could also face
downward pressure if adjusted debt to EBITDA were to rise above 6 times.
The principal methodologies used in rating Aspen Dental Management,
Inc. were Global Business & Consumer Service Industry published
in June 2007, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Aspen, headquartered in East Syracuse, New York, provides
general dentistry services to patients through its owned subsidiaries
and affiliated professional corporations ("PC"). The
parent company is a dental practice management company ("DPM")
that provides dental lab services and various business and management
services to its dentists through long-term management services
Aspen affiliates with its dentists through two models: the staffing
model and the practice ownership program ("POP"). Under
the staffing model (~55% of offices), dentists are at-will
employees of affiliated PCs, where the PCs own the medical records,
patient lists, and operating records. Under the POP model
(~45% of offices), dentists purchase the medical records
from the PC to essentially own their own practice. The company's
audited financials do not consolidate the POP practices. Audited
revenues for the twelve months ended December 31, 2009 approximated
$260 million. The consolidated (unaudited) revenues for
all Aspen branded dental offices, including POP offices, approximated
$322 million over the same period.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 CFR to Aspen Dental
250 Greenwich Street
New York, NY 10007
No Related Data.
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