Approximately $830 million of rated debt and credit facilities affected
New York, July 09, 2018 -- Moody's Investors Service assigned new ratings for Excelsior Merger
Sub, LLC (dba VetCor Professional Practices LLC, "VetCor"),
including a B3 Corporate Family Rating and B3-PD Probability of
Default Rating. Moody's also assigned B2 ratings to the company's
proposed senior secured first-lien credit facilities, consisting
of a $50 million revolving credit facility expiring 2023,
a $450 million term loan due 2025 and a $95 million delayed
draw term loan due 2025. In addition, Moody's assigned
Caa2 ratings to the company's proposed senior secured second-lien
debt issuance, including a $195 million term loan due 2026
and a $40 million delayed draw term loan due 2026. Proceeds
from the new term loans, along with common equity from private equity
firm Oak Hill Capital Partners, will be used to finance the acquisition
of VetCor by Oak Hill Capital Partners in a leveraged buyout transaction.
The ratings outlook is stable.
At the close of the transaction, Excelsior Merger Sub, LLC
will be merged with and into VetCor Professional Practices LLC,
with VetCor Professional Practices LLC being the surviving entity.
The following ratings were assigned for Excelsior Merger Sub, LLC
(subsequently VetCor Professional Practices LLC):
Corporate Family Rating, B3
Probability of default rating, B3-PD
Proposed $50 million senior secured first-lien revolving
credit facility due 2023, B2 (LGD3)
Proposed $450 million senior secured first-lien term loan
due 2025, B2 (LGD3)
Proposed $95 million delayed draw senior secured first-lien
term loan due 2025, B2 (LGD3)
Proposed $195 million senior secured second-lien term loan
due 2026, Caa2 (LGD5)
Proposed $40 million delayed draw senior secured second-lien
term loan due 2026, Caa2 (LGD5)
Rating outlook: Stable
RATINGS RATIONALE
VetCor's B3 Corporate Family Rating broadly reflects its high financial
risk profile -- with Moody's-adjusted debt-to-EBITDA
of 7.4 times on a pro forma basis -- which the rating agency
expects will persist as the company continues to use debt (including the
rated delayed draw term loans) to fund acquisitions. The rating
is also constrained by the company's modest scale, both relative
to other rated companies and larger players in the veterinary industry,
as well as event and financial policy risks related to an aggressive acquisition
strategy and its private equity ownership. However, the rating
benefits from the company's solid market presence as a leading consolidator
of independent veterinary practices, along with favorable long term
trends in the pet care sector that underpin healthy same-store
sales growth in the low- to mid-single digit percent range.
The rating is also supported by strong recurring revenue and a proven
ability to successfully integrate acquisitions.
The stable outlook reflects Moody's expectation that leverage will
remain high as VetCor continues to use debt to fund acquisitions,
but that the company's relatively stable business profile will result
in sustained positive free cash flow.
The ratings could be downgraded if operational performance deteriorates
or liquidity weakens. Inability to manage its rapid growth,
or if EBITA-to-interest falls below one time, could
also put downgrade pressure on the company's ratings.
The ratings could be upgraded if the company delivers sustained revenue
and earnings growth while continuing to deliver on its historically successful
track record of integrating acquisitions. Moderation of financial
policies, partially evidenced by leverage trending below 6.5
times while good cash flows are generated and solid liquidity is maintained,
could also support a prospective upgrade.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Based in Hingham, Massachusetts, VetCor Professional Practices
LLC ("VetCor") is a national veterinary hospital operator
offering a full range of medical products and services, with about
270 locally-branded animal hospitals in 28 states. The company
also offers ancillary services including boarding and grooming,
and the sale of pet food and other retail pet care products. Following
the leveraged buyout transaction, VetCor will be majority-owned
by Oak Hill Capital Partners. Pro forma revenue as of May 31,
2018 is about $505 million.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Joanna O'Brien
Asst Vice President - 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
Russell Solomon
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