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Rating Action:

Moody's confirms Aveanna's B3 CFR, concludes review, rates acquisition financing; outlook negative

13 Jun 2018

New York, June 13, 2018 -- Moody's Investors Service confirmed its B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating for Aveanna Healthcare LLC ("Aveanna," f/k/a as BCPE Eagle Buyer, LLC). Moody's also confirmed the B2 rating of the existing Senior Secured First Lien Credit Facilities, and the Caa2 rating of the Senior Secured Second Lien Term Loan. At the same time, Moody's assigned a B2 rating to Aveanna's proposed Senior Secured Delayed Draw Term Loan due 2024. The ratings outlook has been changed to negative from rating under review.

The proceeds from the issuance of incremental term loan (and potentially Delayed Draw Term Loan) will be used to acquire Premier Healthcare Services, LLC. ("Premier Healthcare"), as well as pay fees and expenses associated with the transaction. This concludes the review initiated on May 11, 2018 following Aveanna's announcement that it had entered into an agreement to acquire a private duty nursing and behavioral health benefit administration provider, Premier Healthcare Services, LLC.

"The negative outlook reflects ongoing weak financial performance, driven in large part by difficulty in integrating the merger of Epic Health Services and PSA Healthcare, as well as the challenging reimbursement environment which has adversely impacted Aveanna's Texas therapy business, in particular," said Vladimir Ronin, Moody's lead analyst for the company. "There are also significant business and integration-related costs and analytic adjustments that render earnings to be lower quality than anticipated, although these are expected to decline materially over the next 12-18 months," added Ronin. Moody's expects financial leverage to remain very high, rather than decline as originally anticipated at the time of the merger of PSA and Epic. Additionally, Moody's expects Aveanna's cash flow profile to be more constrained than initially contemplated.

Moody's took the following actions:

Aveanna Healthcare LLC

- Confirmed Corporate Family Rating, B3

- Confirmed Probability of Default Rating, B3-PD

- Confirmed Senior Secured First Lien Revolver expiring 2022, B2 (LGD3)

- Confirmed Senior Secured First Lien Term Loan due 2024, B2 (LGD3)

- Confirmed Senior Secured Second Lien Term Loan due 2025, Caa2 (LGD6 from LGD5)

- Assigned Senior Secured Delayed Draw Term Loan due 2024, B2 (LGD3)

The ratings outlook was revised to negative from rating under review.

Aveanna's B3 CFR broadly reflects the company's very high financial leverage, a highly concentrated payor mix with significant Medicaid exposure, and relatively limited geographic diversity. Moody's assessment of the company's underlying credit profile also incorporates noteworthy industry pressures, which will make it difficult for Aveanna to meaningfully improve its earnings and cash generation. Moody's estimates pro forma debt/EBITDA of more than 8.0 times, including synergies.

Acquisition of Premier Healthcare will provide Aveanna the benefit of diversification by granting it access to the California market, which will also offer the company an opportunity to cross-sell its products and services. Furthermore, Aveanna will stand to benefit from the proposed increase to the Medi-Cal reimbursement rate, which is in the later stages of approval. However, the acquisition risks stretching management thin as it continues to address integration challenges related to the recent merger of Epic Health Services and PSA Healthcare. Additionally, it will expose Aveanna to the employer of record (EOR) service, a structure in which families recruit, and supervise their own unskilled care givers, a service which has limited barriers to entry, and in which Aveanna has no prior experience.

Despite the critical nature of care provided to patients, including children who require private duty nursing at home, Aveanna has exposure to state budgetary pressures, which will continue to focus on healthcare spending. Moody's expects the state of Texas, which represents roughly 30% of Aveanna's pro forma revenue, to remain one of the most aggressive states with regard to cost reductions. The rating also reflects Moody's belief 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, and which in turn will limit debt repayment. The rating benefits from Aveanna's leading niche position in the otherwise fragmented market of pediatric home health services, and favorable long-term industry growth prospects. The overall market has solid growth prospects due to population trends, and its service offerings will remain critical in nature.

Factors that could lead to an upgrade include demonstration that any further adverse reimbursement changes will be manageable without a major contraction in earnings or cash flow, increased payor and geographic diversity, progress in integrating recent acquisitions, improvement in liquidity reflected by consistent generation of positive free cash flow, and debt/EBITDA sustained below 5.5 times. Conversely, factors that could lead to a downgrade include additional significant reimbursement reductions and/or wage pressure, failure to realize articulated synergies, incurrence of new debt prior to significant progress in integrating PSA and Premier Health Services, or deterioration in liquidity.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Atlanta, Georgia, Aveanna Healthcare LLC was formed through the merger of pediatric home healthcare companies Epic Health Services and PSA Healthcare. The company is a leading provider of pediatric skilled nursing and therapy services, as well as adult home health services, including skilled nursing, therapy, personal care, behavioral health and autism. In May 2018, Aveanna entered into an agreement to acquire a private duty nursing and behavioral health benefit administration provider, Premier Healthcare Services. The company is majority-owned by private equity firms Bain Capital and J. H. Whitney. The company generated pro forma revenues of approximately $1.3 billion in fiscal 2017.

REGULATORY DISCLOSURES

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

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

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
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

Russell Solomon
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.
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