Approximately $1.4 billion of debt rated in conjunction with the contemplated LBO
New York, April 05, 2011 -- Moody's Investors Service assigned a B2 Corporate Family and Probability
of Default Rating to Emergency Medical Services Corporation (EMSC).
Moody's also assigned a B1 (LGD3, 34%) rating to the
proposed $1,440 million term loan due 2018. Concurrently,
Moody's assigned a Speculative Grade Liquidity Rating of SGL-1.
Moody's understands that the proceeds of the term loan, along
with an equity contribution and an issuance of unsecured debt, will
be used to fund the acquisition of the company by Clayton, Dubilier
and Rice, LLC and to retire the company's existing debt at
AMR Holdco, Inc. We understand that EMSC is also expected
to obtain a $350 million asset-based revolving credit facility
due 2016 (not rated by Moody's) and has committed financing for
an unsecured bridge facility of up to $950 million. The
ratings outlook is stable.
The existing ratings of AMR Holdco, Inc. (the borrower in
the existing corporate structure) remain unchanged. We expect to
withdraw the ratings of AMR Holdco, Inc. upon the closing
of this transaction, at which time the outstanding debt will be
repaid.
The rating actions are subject to the conclusion of the transaction,
as proposed, and Moody's review of final documentation.
Following is a summary of Moody's actions.
Ratings assigned:
Emergency Medical Services Corporation:
$1,440 million senior secured term loan due 2018, B1
(LGD3, 34%)
Corporate Family Rating, B2
Probability of Default Rating, B2
Speculative Grade Liquidity Rating, SGL-1
Ratings unchanged and to be withdrawn at the close of the transaction:
AMR Holdco, Inc.:
$125 million senior secured revolving credit facility due 2015,
Baa3 (LGD2, 26%)
$425 million senior secured term loan due 2015, Baa3 (LGD2,
26%)
Corporate Family Rating, Ba1
Probability of Default Rating, Ba2
Speculative Grade Liquidity Rating, SGL-1
RATINGS RATIONALE
"EMSC's B2 Corporate Family Rating reflects the considerable
debt load the company will operate with following the proposed leveraged
buyout," said Dean Diaz, a Moody's Senior Credit
Officer. "While most of the company's credit metrics
will be detrimentally affected by the significant debt load, we
expect the company to maintain very good liquidity with the expectation
of stable free cash flow that could be used to repay debt,"
continued Diaz.
We estimate that this transaction will increase leverage to around 6.8
times, which is very high for the B2 rating and leaves only a modest
equity cushion based on the current estimated purchase multiple.
We expect pro forma cash flow generation to decline due to the related
interest burden. However, we also expect the company to focus
on reducing debt with available free cash flow following the transaction.
The rating also reflects the benefits of the company's scale in
each of its operating segments, which are otherwise very fragmented
among other providers.
The stable outlook reflects our expectation that the company should continue
to benefit from both organic expansion of operations as well as moderate
sized acquisitions. Additionally, while cash flow generation
is expected to be negatively impacted by the increased interest burden
associated with the considerable debt load, we believe the company
will continue to generate sufficient free cash flow and focus on debt
reduction. The outlook also reflects our anticipation that the
company will remain disciplined in its acquisition strategy with respect
to leverage and its expansion into newer service areas.
The Speculative Grade Liquidity Rating of SGL-1 reflects our expectation
that the company will have very good liquidity over the four quarters
following the transaction, characterized by sufficient cash flow
to fund working capital, capital expenditure needs and mandatory
amortization requirements over the forecast period and access to a proposed
$350 million asset based revolving credit facility.
Upward pressure on the rating is somewhat limited in the near term given
the significant increase in leverage with the proposed transaction.
However, if the company improves operating results or repays debt
such that debt to EBITDA is sustained below 5.5 times and free
cash flow to debt is expected to be sustained above 5%, Moody's
could upgrade the ratings.
If the company takes on additional debt to fund acquisitions or incurs
operating difficulties such that leverage were not be reduced from current
levels, Moody's could downgrade the ratings. Additionally,
if government reimbursement levels are significantly reduced in either
segment of the company's business, professional liability claims
rise materially above current levels, or if payor mix shift materially
impacts pricing, such that the company was expected to have negative
free cash flow for a sustained period, we could downgrade the ratings.
For further details refer to Moody's Credit Opinion for Emergency
Medical Services Corporation on moodys.com.
This is the first time Moody's has assigned a rating to Emergency Medical
Services Corporation, the borrower in this transaction. The
last rating action on AMR Holdco was on March 4, 2010 when we upgraded
the company's Corporate Family Rating to Ba1 from Ba2. The company's
existing debt was also upgraded at that time and ratings were assigned
to the company's new credit facility. Finally, the
Speculative Grade Liquidity Rating was upgraded to SGL-1 from SGL-2.
The principal methodologies used in this rating were Global Business &
Consumer Service Industry published in October 2010 and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Emergency Medical Services Corporation is a leading provider of emergency
medical services in the U.S. EMSC operates through two business
segments: EmCare is the company's emergency department and hospital
physician outsourcing segment and AMR is a leading provider of medical
transport in the U.S. For the year ended December 31,
2010 the company reported revenues of approximately $2.9
billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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.
New York
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Dean Diaz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B2 CFR to EMSC; proposed credit facility rated B1; outlook is stable
