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Rating Action:

Moody's changes Aveanna's outlook to stable from negative; affirms B3 CFR

26 Mar 2021

New York, March 26, 2021 -- Moody's Investors Service, ("Moody's") changed the outlook for Aveanna Healthcare LLC ("Aveanna") to stable from negative. At the same time, Moody's affirmed the company's B3 Corporate Family Rating ("CFR") and B3-PD Probability of Default Rating ("PDR"), the B2 rating on the company's senior secured first lien credit facilities, and the Caa2 rating on the senior secured second lien term loan.

The rating affirmation and change of outlook to stable reflects strengthening in Aveanna's operational performance despite the impact of the coronavirus outbreak, and improved liquidity. Moody's expects further improvement in profitability and credit metrics over the next 12-18 months. Additionally, Moody's expects that Aveanna will be able to successfully integrate its recent home health and hospice acquisitions.

Moody's took the following rating actions on Aveanna Healthcare LLC:

Affirmations:

.... Corporate Family Rating, at B3

.... Probability of Default Rating, at B3-PD

....Senior Secured First Lien Revolving Credit Facility, at B2 (LGD3)

....Senior Secured First Lien Term Loan, at B2 (LGD3)

....Senior Secured Second Lien Term Loan, at Caa2 (LGD5 from LGD6)

Outlook Actions:

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Aveanna's B3 CFR reflects the company's high financial leverage, with pro forma debt/EBITDA of approximately 7.2x on a Moody's adjusted basis for the twelve months ended December 31, 2020. This calculation gives the benefit of adding back unusual COVID-19 related costs. Moody's believes that the company will continue to pursue an aggressive growth strategy, including acquisitions that are likely to be at least partially funded with incremental debt. The rating also reflects Aveanna's highly concentrated payor mix with significant Medicaid exposure, and meaningful geographic concentration in the sates of Texas, California, and Pennsylvania.

However, the rating benefits from Aveanna's leading niche position in the otherwise fragmented market of pediatric home health services, where it provides critical services to children and families, as well as its expanding presence in home health and hospice segment. Moody's believes that the company's strategy to grow its home health and hospice businesses will benefit the credit profile through greater scale, increased service line and payor diversity and faster growth. That said, building up a new service area brings execution risk and home health and hospice acquisitions typically have higher purchase multiples than Aveanna's other businesses. This will likely result in leverage remaining elevated in order to support acquisitions.

Social and governance considerations are material to Aveanna's credit profile. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given Aveanna experienced substantial declines in volumes, which peaked in late March and April 2020. However, volumes have mostly recovered, and Moody's expects growth will be in the mid-single digits over the next 12-18 months, given the necessity of the company's services offering. Moody's believes Aveanna will remain exposed to the social risks of providing health care and related services in private duty nursing and therapy to a highly vulnerable patient base often comprised of sick and disabled children who need near around-the-clock care. There is ongoing legislative, political, media and regulatory focus on ensuring the delivery of medically appropriate care to this patient base. Private duty nursing, home health and hospice companies that bill Medicare and Medicaid are subject to a significant number of complex regulations. Any weakness in providing healthcare services - real or perceived - can negatively affect Aveanna's reputation and ability to attract and sustain clients at profitable rates. Additionally, a possible data breach event, where intellectual property and other internal types of sensitive records are released could cause legal or reputational harm.

With respect to governance, Moody's expects Aveanna's financial policies to remain aggressive due to its ownership by private equity firms Bain Capital and J. H. Whitney, as well as a track record of supplementing organic growth with material debt-funded acquisitions.

Aveanna's good liquidity is supported by approximately $137 million of cash on balance sheet as of December 31, 2020. However, the company's cash balance will be reduced by $25 million following the repayment of HHS provider relief funds, which the company made in February 2021. Additionally, the cash balance includes $49 million of deferred payroll taxes as permitted by the Cares Act, of which 50% has to be paid on 12/31/21 and the remaining 50% will be paid on 12/31/22. Moody's expects Aveanna will fund all basic cash obligations from internal sources over the next 12 to 18 months. The company also has a $75 million revolving credit facility, expiring in March 2023. While there was no outstanding balance under the facility as of December 31, 2020, the revolver is limited by roughly $20 million of letters of credit outstanding, associated with workers compensation. The company's secured revolver is subject to maximum total net leverage covenant which will have ample headroom.

The stable outlook reflects Moody's expectation that Aveanna will continue to grow revenue and earnings, but that financial leverage will remain high as the company will remain acquisitive, over the next 12-18 months. The outlook also reflects Moody's expectations that EBITDA addbacks will continue to decline, and that Aveanna will maintain at least adequate liquidity.

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

The ratings could be upgraded if Aveanna effectively manages its growth, while maintaining conservative financial policies reflected in adjusted debt/EBITDA sustained below 5.5 times. The company would also need to maintain good liquidity reflected by consistent generation of positive free cash flow.

The ratings could be downgraded if Aveanna experiences significant reimbursement reductions and/or wage pressure. An aggressive acquisition strategy or debt funded dividends could also lead to a downgrade. Further, weakening of liquidity or sustained negative free cash flow could lead to a downgrade.

Headquartered in Atlanta, Georgia, Aveanna Healthcare LLC, is a leading provider of pediatric skilled nursing and therapy services, home health and hospice services, as well as medical solutions, such as enteral nutrition, respiratory therapy, and medical supply procurement. Aveanna is majority-owned by private equity firms Bain Capital and J. H. Whitney. The company generated revenues of approximately $1.5 billion for the twelve months ended December 31, 2020.

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Vladimir M. Ronin, CFA
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

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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