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Rating Action:

Moody's upgrades Aveanna's CFR to B2; outlook stable

04 May 2021

New York, May 04, 2021 -- Moody's Investors Service, ("Moody's") upgraded Aveanna Healthcare LLC's ("Aveanna") Corporate Family Rating (CFR) to B2 from B3 and its Probability of Default Rating (PDR) to B2-PD from B3-PD. Concurrently, Moody's affirmed the B2 ratings on Aveanna's senior secured first lien bank credit facilities, and assigned an SGL-2 Speculative Grade Liquidity rating. There was no action taken on the senior secured second lien term loan rating, which is expected to be withdrawn, following full repayment of the outstanding balance. The outlook is stable.

The rating actions follow Aveanna's April 29 initial public offering (IPO) of approximately 38.2 million shares, generating net proceeds of over $430 million. Aveanna intends to use the proceeds to repay its entire second lien term loan (balance of roughly $307 million), as well as approximately $100 million of its first lien term loan. The remaining proceeds will add cash to the balance sheet to fund future growth.

"The ratings upgrade reflects the material improvement in credit metrics that will result from Aveanna's repayment of a meaningful portion of outstanding debt and associated reduction in interest," said Vladimir Ronin, Moody's lead analyst for the company. "Pro forma for the debt repayment, adjusted debt to EBITDA will decline to approximately 4.9x for fiscal year 2020, down from 6.6x on an actual basis. The upgrade also reflects Moody's expectation for improvement in Aveanna's liquidity, due to strengthening cash flow and a significantly larger revolving credit facility, which combined, will provide Aveanna greater flexibility to execute its aggressive growth strategy," added Ronin.

The assignment of the SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that Aveanna's liquidity will be good over the next 12 to 18 months. Aveanna's liquidity will be supported by free cash flow of roughly $50 million over the next year, a cash balance of approximately $90 million pro forma for the IPO proceeds, and access to an upsized $200 million (up from $75 million) revolving credit facility expiring in 2023.

The following actions were taken:

Upgrades:

..Issuer: Aveanna Healthcare LLC

.... Corporate Family Rating, Upgraded to B2 from B3

.... Probability of Default Rating, Upgraded to B2-PD from B3-PD

Affirmations:

..Issuer: Aveanna Healthcare LLC

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

Assignments:

..Issuer: Aveanna Healthcare LLC

.... Speculative Grade Liquidity Rating, Assigned SGL-2

Outlook Actions:

..Issuer: Aveanna Healthcare LLC

....Outlook, Remains Stable

RATINGS RATIONALE

Aveanna's B2 Corporate Family Rating broadly reflects the company's moderately high financial leverage of 4.9 times (with Moody's standard adjustments) pro forma for expected debt repayment with IPO proceeds. 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 states of Texas, California, and Pennsylvania.

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. 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 that as a publicly traded, Aveanna will maintain more moderate financial leverage, however continued significant ownership interest in the company by private equity investors will result in meaningful governance risk.

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

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

The ratings could be upgraded if Aveanna successfully builds a credible home health and hospice business, thereby diversifying its geographic and payor mix. Quantitatively, debt/EBITDA sustained below 4.5x and free cash flow to debt of at least 5%, on a sustained basis, could support an upgrade. The company would also need to maintain its good liquidity.

The ratings could be downgraded if Aveanna experiences significant reimbursement reductions and/or wage pressure or pursues more aggressive financial policies. Quantitatively, debt/EBITDA sustained above 5.5x could lead to a downgrade. Further, weakening of liquidity or sustained negative free cash flow could lead to a downgrade.

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.

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 completed initial public offering in April 2021, however private equity investors Bain Capital and J. H. Whitney, retain a significant ownership interest in the company. The company generated revenues of approximately $1.5 billion for the twelve months ended December 31, 2020.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

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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