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Related Issuers
Rating Action:

Moody's changes ADMI Corp.'s outlook to stable; affirms B2 CFR

11 Nov 2020

New York, November 11, 2020 -- Moody's Investors Service, ("Moody's") changed ADMI Corp.'s ("ADMI", dba Aspen Dental) outlook to stable from negative and affirmed its B2 Corporate Family Rating, the B2-PD Probability of Default Rating, and the B2 first lien senior secured debt rating.

The stabilization of the outlook reflects Aspen's return of patient volumes to near pre-coronavirus levels. At the same time, strong cost management has enabled the company to maintain strong profitability and cash flow through the coronavirus pandemic. The stable outlook also reflects Moody's view that another nationwide mandate to defer dental services is unlikely. Aspen's geographic diversity should limit the impact from coronavirus outbreaks in any particular region.

The affirmation of the B2 CFR reflects the company's good liquidity and moderately high financial leverage. Aspen's adjusted debt/EBITDA approximated 5.0x for the twelve months ended September 30, 2020. This level of leverage, along with the company's ability to reduce variable costs and growth capital expenditures if necessary, positions the company well to withstand the potential for further stress from the coronavirus pandemic and/or a weakening of the economy.

Moody's took the following rating actions:

ADMI Corp.

Corporate Family Rating affirmed at B2

Probability of Default Rating affirmed at B2-PD

Senior Secured Bank Credit Facilities affirmed at B2 (LGD3)

Outlook action:

Outlook, changed to stable from negative

RATINGS RATIONALE

Aspen Dental's B2 Corporate Family Rating reflects its moderately high financial leverage and aggressive growth strategy, with 70 to 80 new office openings per year. Moody's expects that these factors will constrain profitability margins and free cash flow over the next several years. The rating is also constrained by the high proportion of self-pay revenues, as patients typically are responsible for a large portion of their bill and rely on third party financing arrangements. The rating also reflects the lingering operating uncertainty due to the coronavirus pandemic. Despite these challenges, the rating reflects the company's strong market position as one of the largest dental service organizations (DSO) in the US. The rating also takes into account Aspen's good geographic diversity and solid track record of business execution and growth.

Moody's expects Aspen Dental will maintain good liquidity with about $60 million of cash and a $75 million undrawn revolving credit facility, expiring in 2023. Aspen has been able to conserve liquidity by reducing new office openings and growth capital expenditures, but Moody's believes these activities will resume to prior levels as the risk from the coronavirus pandemic ebbs. As a result, Moody's expects free cash flow to be modestly positive over the next 12-18 months.

Moody's considers coronavirus to be a social risk given the risk to human health and safety. Aside from coronavirus, Aspen Dental faces other social risks such as the rising concerns around the access and affordability of healthcare services. However, Moody's does not consider the DSOs to face the same level of social risk as many other healthcare providers. From a governance perspective, Moody's expects Aspen Dental's financial policies to remain aggressive due to its private equity ownership.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if the company's liquidity weakens or if debt/EBITDA is sustained above 6 times. A material reduction in free cash flow or additional debt funded transactions could also result in a ratings downgrade.

An upgrade is possible if Aspen Dental adopts more conservative financial policies and maintains debt/EBITDA below 4.5 times. Additionally, a less aggressive new office opening strategy that resulted in improved profitability and cash flow could support an upgrade.

Aspen Dental provides business support services to its 843 affiliated dental offices across 42 states. The company is privately-held and majority-owned by Ares Management, LP and Leonard Green & Partners, L.P., with the remaining 20% owned by American Securities, management and dentists. The company's audited financials do not consolidate the practice ownership program ("POP") practices. As of September 30, 2020, excluding POP offices, the company generated net revenues of approximately $863 million, while the consolidated net revenues for all dental offices, including POP offices, was approximately $1.4 billion for the same period.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Jaime Johnson
Vice President - Senior 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

Jessica Gladstone, CFA
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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