New York, December 01, 2020 -- Moody's Investors Service, ("Moody's") confirmed
ADMI Corp.'s ("ADMI") B2 Corporate Family Rating,
the B2-PD Probability of Default Rating, and the B2 ratings
on the first lien senior secured term loan and first lien senior secured
revolving credit facility. At the same time, Moody's
assigned B2 ratings to the proposed add-on first lien senior secured
term loan and the incremental first lien senior secured revolving credit
facility. The rating outlook is stable. Today's rating
actions conclude the review of ADMI's ratings initiated on November 16,
2020.
The rating action follows the announced acquisition of CC Dental Implants
Holding, LLC ("CC") for $1.135 billion.
CC provides non-clinical business support services to dental practices
operating under the ClearChoice brand. ClearChoice practices are
the leading national provider of fixed full-arch dental implants
and related treatments. The acquisition will be funded with a $1,200
incremental first lien senior secured term loan, and rollover management
equity. ADMI also amended its existing $75 million revolving
credit facility, upsizing to $250 million, which is
expected to be undrawn at close.
The confirmation of the B2 CFR reflects Moody's expectation that
the company's pro forma leverage will increase to 6.7x following
the transaction, with expectations to reduce below 6.0x over
the next 12-18 months. While the acquisition will add scale
and improve diversification, there is integration risk as ADMI continues
to operate amidst a potential weaker operational environment due to ongoing
coronavirus headwinds. Despite these challenges, ADMI and
the dental practices supported by Aspen Dental Management, Inc.
("Aspen Dental practices") will continue to have good liquidity,
generate solid free cash flow and maintain strong profitability.
The acquisition will diversify the product and service offerings of the
practices supported by ADMI while adding fixed, full arch replacement
offerings to the strong denture and overdenture services at Aspen Dental
practices. ADMI and Aspen Dental practices will maintain its national
footprint and good geographic diversification, with opportunities
for referrals between it and ClearChoice practices.
The stable rating outlook reflects Moody's expectation that the
company will see leverage improvement given the combined entity's
strong earnings outlook and the ability to achieve synergies for procurement
savings and SG&A cost synergies including a national advertising campaign.
Combined with effective cost management, Moody's expects the
company to generate consistent positive free cash flow. Aspen Dental
and ClearChoice patient volumes have returned to near pre-coronavirus
levels, and Moody's believes that another nationwide mandate
to defer dental services is unlikely.
Moody's took the following rating actions:
ADMI Corp.
Ratings Confirmed:
Corporate Family Rating confirmed at B2
Probability of Default Rating confirmed at B2-PD
$75 million Revolving Credit Facility confirmed at B2 (LGD3)
$920 million First Lien Term Loan confirmed at B2 (LGD3)
Ratings Assigned
$250 million Incremental Revolving Credit Facility assigned at
B2 (LGD3)
$1,200 million First Lien Term Loan add-on assigned
at B2 (LGD3)
Outlook action:
Outlook, changed to stable from rating under review
RATINGS RATIONALE
ADMI's B2 Corporate Family Rating reflects its elevated pro forma financial
leverage of approximately 6.7x following its acquisition of CC,
as well as integration risk surrounding an acquisition that is increasing
its revenue by 30%. While the acquisition will add scale
and allow ADMI to access the fast-growing high-end full
arch replacement market, the rating is constrained by aggressive
de novo growth strategies and a high proportion of self-pay revenues
in both businesses. The rating also reflects the weaker operational
environment due to coronavirus headwinds. While volumes have mostly
recovered, risks remain around the potential for local market shutdowns
through the end of 2021. The rating also reflects the risk of a
prolonged recession in the US that could reduce longer-term demand
for higher end products from ClearChoice's portfolio.
The rating is supported by the combined entity's strong market presence
as a differentiated dental service provider with few competitors of scale.
The rating benefits from favorable industry dynamics, with a growing
market of edentulous patients, due to the aging population.
The stand-alone entities have historically positive trends in same-store
sales growth. Further, the expectation of solid free cash
flow is driven by generally low maintenance capital expenditures and ClearChoice's
revenue cycle which includes upfront payments by patients. Additionally,
ADMI 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.
Moody's anticipates that ADMI will maintain good liquidity post-closing,
supported by an undrawn $250 million revolving credit facility
and post-transaction cash balance of $111 million.
Moody's expects the combined entity to generate about $65
million of free cash flow in 2021, supported through increases in
deferred revenue from the ClearChoice business. A material reduction
in new patients could result in negative working capital swing.
Moody's considers coronavirus to be a social risk given the risk to human
health and safety. Aside from coronavirus, ADMI and Aspen
Dental practices face 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. That being said, ClearChoice
faces other social risks such as reputational risks given the highly consumer
driven model. Bad reviews on-line or bad publicity stemming
from a small number of unhappy clients could result in material harm to
the company's revenue and cash flow. From a governance perspective,
Moody's expects ADMI'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. Additionally, if the ratings could
be downgraded if Aspen experiences material integration related disruption.
An upgrade is possible if Aspen Dental adopts more conservative financial
policies and maintains debt/EBITDA below 4.5 times. Additionally,
effective management of growth that resulted in improved profitability
and cash flow, and successful integration of ClearChoice could support
an upgrade.
The proposed first lien term loan is expected to have no financial maintenance
covenants while the proposed revolving credit facility will continue to
contain a maximum first lien net leverage ratio that will be springing
and tested when the revolver is more than 35% drawn. In
addition, the first lien credit facility contains incremental facility
capacity after the transaction closes of the greater of amendment closing
EBITDA or 100% consolidated EBITDA, plus any unused capacity
under the general debt basket, plus an additional amount subject
to 0.50x above Amendment Closing first lien net leverage ratio
or, so long as first lien net leverage does not increase on a pro
forma basis if incurred in connection with a permitted acquisition.
There are no "blocker" provisions providing additional restrictions on
top of the covenant carve-outs to limit collateral leakage through
transfers of assets to unrestricted subsidiaries. Only wholly-owned
subsidiaries must provide guarantees; guarantees can be automatically
released at borrower's election following transfers or dividends
of partial ownership interests. The company's obligation
to prepay obligations with net proceeds of asset sales is reduced and
eliminated subject to achieving certain leverage levels, weakening
control over collateral.
ADMI provides business support services to its 854 affiliated dental offices
across 42 states, while CC serves a network of 65 affiliated dental
implant centers across 27 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, Aspen 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. ClearChoice generated revenues of
approximately $445 million for the LTM September 30, 2020
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
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These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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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.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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
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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
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JOURNALISTS: 1 212 553 0376
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