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Global Credit Research - 26 Jan 2011
New York, January 26, 2011 -- Moody's Investors Service assigned a B3 Corporate Family Rating and B3
Probability of Default rating to MedImpact Holdings, Inc.,
the borrowing entity for MedImpact Healthcare Systems, Inc.
At the same time, Moody's assigned a Caa2 to the company's
senior secured notes and assigned the company an SGL-2 Speculative
Grade Liquidity Rating. The outlook is stable. Proceeds
from this offering are expected to be used to repay vendor payables and
provide a cash infusion to the company, the majority of which can
be taken as a dividend by the majority shareholder.
MedImpact Holdings, Inc.
Corporate Family Rating at B3
PDR at B3
Senior secured notes at Caa2, LGD5, 89%
The B3 CFR reflects MedImpact's very high leverage, small
revenue base, recent decline in profitability, and aggressive
financial practices and weak governance stemming from a highly concentrated
ownership structure. Further, Moody's believes that
leverage is potentially understated due to the presence of substantial
payables. The ratings also reflect MedImpact's position as
a niche pharmacy benefit manager (PBM) that serves mid-sized customers,
including hospital systems, regional managed care organizations
and state Medicaid health plans. Because MedImpact acts solely
as an agent and does not purchase drugs or own mail order fulfillment
or specialty services, its revenue base is very small compared to
the three rated, full-service PBMs: CVS/Caremark (Baa2),
Express Scripts (Baa3) and Medco (Baa3).
"High leverage and expectations of lower cash flows as MedImpact
addresses its vendor working capital requirements, as well as pressure
from recent rate renewals provide key risks," said Diana Lee,
a Senior Credit Officer at Moody's. "MedImpact has
had limited checks and balances in place that restrict loans and dividends
to the majority shareholder," continued Lee. Although
the bond indenture is expected to introduce restrictions to protect bondholders,
certain carve outs remain.
The company's SGL-2 reflects its good liquidity profile,
characterized by sufficient cash flow to support operating needs,
a modest sized ABL revolver and the absence of financial covenants unless
the revolver is substantially drawn. While the ABL is backed by
allowable receivables, other assets - including real estate
and those related to aviation - secure notes payable and therefore
are not available as an alternate liquidity source.
The senior secured notes are secured by equity, providing limited
protection for bondholders. In addition, the presence of
sizeable trade payables and a $20 million ABL revolver at the operating
company (MedImpact Healthcare Systems, Inc.), and notes
payable at various restricted subsidiaries, which are secured by
real estate and aviation related assets, result in the senior notes
being rated two notches below the CFR.
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
MedImpact Healthcare Systems, Inc., a wholly-owned
operating subsidiary of MedImpact Holdings, Inc., is
a pharmacy benefit management company (PBM) headquartered in San Diego,
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
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
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B3 CFR to MedImpact; sr secured notes at Caa2
250 Greenwich Street
New York, NY 10007
No Related Data.
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