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Related Issuers
Rating Action:

Moody's downgrades Radiology Partners' CFR to Caa1; outlook is stable

18 Nov 2022

New York, November 18, 2022 -- Moody's Investors Service ("Moody's") downgraded Radiology Partners, Inc.'s ("Radiology Partners") ratings, including the Corporate Family Rating (CFR) to Caa1 from B3, the Probability of Default Rating (PDR) to Caa1-PD from B3-PD, the first lien senior secured rating to B3 from B2 and the rating on the company's senior unsecured notes to Caa3 from Caa2. The outlook remains stable.

The ratings downgrade reflects a deterioration in operating performance since the end of 2021 due to wage pressure, impacts of the No Surprise Act (NSA) on working capital, and continued, although subdued, debt-funded growth strategy. As a result, leverage has increased by more than 1x year-to-date to approximately 10x at September 30, 2022. Moody's expects leverage to steadily decline, but remain very high at over 8.0x over the next 12-18 months. Additionally, Radiology Partners liquidity has weakened as the company drew on its revolver to fund recent acquisitions, capital expenditures, and other corporate purposes. Moody's expects an improvement in cashflows in 2023 with improved margins, lower capital expenditures and reduced equity and joint venture distributions.

Governance risk considerations are material to the ratings action, reflecting Radiology Partners' very aggressive financial policy with regards to sustained elevated leverage.

Downgrades:

..Issuer: Radiology Partners, Inc.

.... Corporate Family Rating, Downgraded to Caa1 from B3

.... Probability of Default Rating, Downgraded to Caa1-PD from B3-PD

....Senior Secured 1st Lien Revolving Credit Facility, Downgraded to B3 (LGD3) from B2 (LGD3)

....Senior Secured 1st Lien Term Loan, Downgraded to B3 (LGD3) from B2 (LGD3)

....Senior Secured Notes, Downgraded to B3 (LGD3) from B2 (LGD3)

....Senior Unsecured Notes, Downgraded to Caa3 (LGD6)  from Caa2 (LGD6)

Outlook Actions:

..Issuer: Radiology Partners, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Radiology Partners' Caa1 Corporate Family Rating reflects the company's very high financial leverage and adequate liquidity. The ratings also reflect risks tied to the company's aggressive growth strategy. The rating is supported by Radiology Partners' dominant position in a fragmented industry as one of the largest radiology practices in the US, diversification by geography and customer type, stable business prospects, and favorable payor mix.

The company's debt/EBITDA was approximately 10.0 times for the twelve months ending September 30, 2022 on a Moody's adjusted basis. Moody's expects the company's leverage will remain very high at over 8.0 times over the next 12-18 months.

Moody's expects Radiology Partners to have adequate liquidity. The company had $68 million in cash and $208 million of availability on its $440 million revolving credit facility at the end of the third quarter of 2022. Moody's expects positive free cash flow in 2023 reflecting improved margins, lower capital expenditures and lower equity and joint venture distributions. Moody's believes that Radiology Partners has the potential to generate over $60 million of free cash flow absent certain acquisition and integration costs - more than enough to cover mandatory debt amortization in the next 12 months. More than 80% of Radiology Partners' debt is either fixed rate or hedged through at least December 2023, which reduces the company's exposure to higher rates.

The first lien revolver and term loan, as well as the secured notes, are rated B3, one notch above the Caa1 CFR. This reflects the first loss absorption provided by a material amount of junior debt in the form of $652 million unsecured notes, rated Caa3.

ESG CONSIDERATIONS

Radiology Partners' credit impact score is highly negative (CIS-5, previously CIS-4), reflecting its very highly negative exposure to governance risks considerations (G-5, previously G-4) and highly negative credit exposure to social risk considerations (S-4). Credit exposure to governance risk considerations is very highly negative, reflecting sustained high financial leverage and track record of debt-funded acquisitions under private equity ownership. Credit risk exposures to social considerations is highly negative, reflecting the company's exposure to human capital and reliance on a highly skilled workforce (radiologists) and exposure to labor shortages and wage inflation. The company is also exposed to changes in reimbursement rates by its payors.

The outlook is stable. Moody's expects modest deleveraging and adequate liquidity over the next 12-18 months.

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

Ratings could be upgraded if Radiology Partners continues to reduce the pace and size of acquisitions and smoothly integrates acquired practices. Additionally, Moody's would consider an upgrade if the company's adjusted debt/EBITDA is sustained below 7.5 times and the company demonstrates the ability to sustainably generate positive free cash flow and improve liquidity.

Ratings could be downgraded if the company's liquidity and/or operating performance deteriorates, or if it fails to effectively integrate acquired practices, or if its financial policies become more aggressive.

Headquartered in El Segundo, CA, Radiology Partners, Inc. (RP) is one of the largest radiology practices in the U.S. The company's services include diagnostic and interventional radiology. Radiology Partners employs over 2,800 radiologists that provide services to over 3,260 hospitals and outpatient facilities across all 50 states. The company is 19.6% owned by New Enterprise Associates, 10.0% by Future Fund, 31.6% by Whistler and the rest by physicians, management and other investors. The company's LTM revenues were approximately $2.5 billion as of June 30, 2022.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Adam Chaim
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

Ola Hannoun-Costa
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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