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16 Mar 2011
Approximately $257.5 million of rated debt affected
New York, March 16, 2011 -- Moody's Investors Service assigned B1 Corporate Family and Probability
of Default Ratings to Surgery Center Holdings, Inc. ("Surgery
Partners") and a Ba3 rating to the company's $257.5
million of senior secured credit facilities in connection with the acquisition
of NovaMed, Inc. for approximately $198 million.
The rating outlook is stable.
The following ratings were assigned:
Surgery Center Holdings, Inc.
Corporate Family Rating at B1;
Probability of Default Rating at B1;
$237.5 million senior secured 1st lien term loan at Ba3
$20 million revolving credit facility at Ba3 (LGD3, 42%);
The rating outlook is stable.
The B1 Corporate Family Rating reflects the combined company's high
leverage at the inception of the transaction at about 4.7 times
pro forma debt-to-EBITDA, relatively small scale even
after the acquisition as well as integration challenges associated with
incorporating a larger business as measured by revenues or number of surgery
centers. Additional concerns include the weak economic environment
and still high unemployment rate which has lead to slower growth in procedures.
While some modest rate improvement is currently expected, the potential
for rate compression from government sponsored programs (mostly Medicare)
and commercial payors exists.
However, the ratings also incorporate the positive long term growth
prospects of the sector as many patients and payors prefer the outpatient
environment (primarily due to lower cost and better outcomes) for certain
specialty procedures. Moreover, in Moody's view,
the acquisition of NovaMed by Surgery Partners provides an opportunity
to increase utilization of existing facilities while developing new partnerships.
Moody's also notes Surgery Partners' cash flow margin (as
measured by EBITDA less minority interest-to-revenues) is
relatively strong at around 25% despite offering lower cost services
and supports Moody's expectation that the company will be able generate
free cash flow increasing to above 5% of total debt over the next
Downward rating pressure would be likely if unforeseen integration challenges
or the reimbursement environment resulted in lower revenues and cash flow
such that de-leveraging or free cash flow were constrained.
Specifically, the rating would likely be lowered if leverage is
sustained above 5 times or free cash flow were to trend below 5%
of total debt.
An upgrade is unlikely over the near term, given the still small
size of the combined company and the focus on integration and new ventures
with physicians. Moody's would consider a higher rating as
revenues approach $500 million and leverage declines to under 4
Surgery Partners' ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as i) the
business risk and competitive position of the company versus others within
its industry, ii) the capital structure and financial risk of the
company, iii) the projected performance of the company over the
near to intermediate term, and iv) management's track record of
tolerance for risk. These attributes were compared against other
issuers both within and outside of Surgery Partners' core industry and
Surgery Partners' ratings are believed to be comparable to those other
issuers of similar credit risk.
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.
Surgery Partners, headquartered in Tampa, FL.,
owns and operates 49 Ambulatory Surgical Centers ("ASCs")
in partnership with its physician partners, across 19 states.
The Company has diversified core competencies in pain management,
orthopedics, gastrointestinal, ophthalmology, ear,
nose and throat, general surgery and urology. Surgery Partners
also provides ancillary services including anesthesia and physician practice
services. Surgery Partners is majority owned by H.I.G.
Capital and management. On a pro forma basis for the fiscal year
ended December 31, 2010, Surgery Partners generated revenue
of about $249.2 million.
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 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.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Surgery Center Holdings B1 CFR; Bank facilities at Ba3
250 Greenwich Street
New York, NY 10007
No Related Data.
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