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Rating Action:

Moody's upgrades Signify Health to B1 CFR, assigns B1 first-lien debt ratings; outlook stable

08 Jun 2021

$535 million of newly rated debt

New York, June 08, 2021 -- Moody's Investors Service, ("Moody's") upgraded Signify Health, LLC's ("Signify") corporate family rating ("CFR") to B1, from B2, and its probability of default rating ("PDR") to B1-PD, from B2-PD. Moody's is maintaining Signify's speculative-grade liquidity rating of SGL-1, reflecting its continued very good liquidity. Moody's also assigned B1 instrument ratings to the health risk assessment ("HRA") and episodes-of-care-services provider's new first-lien debt, which includes a $185 million revolving credit facility and a $350 million term loan. Proceeds from the new term loan and balance sheet cash will be used to repay the $411 million balance on Signify's existing first-lien loan, and to satisfy transaction expenses. Upon closing of the proposed transaction and repayment of debt (which will include the termination of an $80 million revolver), Moody's will withdraw Signify's existing (B2) instrument ratings. The outlook is stable.

The ratings upgrade is based upon Moody's expectation for strong operating performance and improving leverage. Following Signify's IPO in February 2021, Moody's expects the company to maintain a more conservative leverage profile than historical levels. Moody's views this ESG -- Governance consideration as a key driver of this ratings action.

Upgrades:

..Issuer: Signify Health, LLC

.... Corporate Family Rating, Upgraded to B1, from B2

.... Probability of Default Rating, Upgraded to B1-PD, from B2-PD

Assignments:

..Issuer: Signify Health, LLC

....Senior Secured 1st Lien Revolving Credit Facility, Assigned B1 (LGD4)

....Senior Secured 1st Lien Term Loan, Assigned B1 (LGD4)

Outlook Actions:

..Issuer: Signify Health, LLC

....Outlook, Remains Stable

RATINGS RATIONALE

Signify's improved ratings are the result of its exceptionally strong liquidity position, steadily improving, moderate financial leverage, and Moody's expectations for double-digit revenue growth. In its February 2021 IPO, Signify raised net cash proceeds of $610 million, giving the company a negative net funded debt position. After the proposed refinancing transaction, which sweeps $67 million from the balance sheet, Signify will still have nearly twice as much cash as the $350 million in newly funded debt.

Signify has disclosed little in terms of its expected use of IPO proceeds, indicating that M&A activity could be part of its plans, but it has provided clarity on what Moody's expects will be a relatively conservative approach to financial policy, including maintaining financial leverage at lower than historical levels. Private equity sponsor New Mountain Capital continues to have a majority, 62% ownership position in the company, which weighs on the CFR. Moody's expects 15% to 20% revenue growth in 2021, to about $725 million. The scale is still somewhat small relative to B1-rated service industry peers.

Signify showed marked operational resilience in 2020, despite challenges posed by the COVID-19 crisis, in both of its segments, HRA services and episodes-of-care services. During the pandemic, Signify has been able to quickly deliver virtual health HRAs. In-home HRA visits that had been postponed in April and May of 2020 accelerated in the latter part of the year, driving a nearly 22% revenue improvement in 2020. It also transitioned Remedy, its episodes-of-care unit acquired in January 2019, to a virtual platform and drove improvements in performance metrics in that segment. Most of the integration of Remedy is complete, and the cross selling of HRE services with social determinants of health ("SDOH") and transition-to-home platforms is seeing success. Cross selling, as well as increases in program sizes of both Medicare Advantage and Bundled Payments for Care Improvement ("BPCI"), will drive strong revenue growth in the respective segments.

As proposed, the new credit facility is expected to provide covenant flexibility that could negatively affect creditors, including: (i) incremental facility capacity not to exceed (x) the greater of $152 million and $100% of adjusted EBITDA, plus any unused portion of the general debt basket, plus (y) an amount such that first lien net secured leverage does not exceed 3.50 times (if pari passu secured). Amounts up to the greater of $76 million and 50% of adjusted EBITDA may be incurred with an earlier maturity date than the initial term loans. (ii) There are no express "blocker" provisions which prohibit the transfer of specified assets to unrestricted subsidiaries; such transfers are permitted subject to carve-out capacity and other conditions. (iii) Dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees; subject to protective provisions which permit guarantee releases so long as such disposition is with an unaffiliated third party in connection with a bona fide business transaction. (iv) There are no express protective provisions prohibiting an up-tiering transaction.

The above are proposed terms and the final terms of the credit agreement may be materially different.

Revenue growth and sustained, strong margins will drive organic deleveraging from already moderate levels. Moody's expects adjusted-debt-to-EBITDA to ease to 3.0 times at year-end 2021, from 3.4 times as of March 31, 2021, pro-forma for the proposed refinancing, which itself represents a $61 million net decline in funded debt, to $350 million. (Moody's adjustments to both EBITDA and debt result in a delta relative to the company's leverage calculation of roughly one full turn higher.) Moody's expectations for about $70 million in free cash flow in 2021 and an undrawn $185 million revolver (upsized by $105 million from the current size) augment what is already, given Signify's cash balance, a very good liquidity profile.

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

Moody's could upgrade the ratings if free cash flow as a percentage of debt holds above 10%; if the company maintains good revenue growth while diversifying revenue sources across business lines and away from CMS-associated (Centers for Medicaid and Medicare) sources; if sponsor-controlled equity ownership falls below 50%, and; if Moody's expects it will adhere to a conservative financial policy.

Moody's could downgrade the ratings if expected revenue growth is in the single-digit percentages; if Moody's-adjusted debt-to-EBITDA leverage holds above 4.0 times; if we expect free cash flow will be in the mid-single-digit percentages for a sustained period; or if there is a legislatively imposed change to the scope of the HRA model.

Signify Health, domiciled in both Dallas, TX and Norwalk, CT, is a leading provider of home-based heatlh risk assessment ("HRA") services on behalf of Medicare Advantage health plans in the US, and chronic and post-acute bundled payment management. The company was formed by the late-2017 acquisition by New Mountain Capital of both Censeo Health and Advance Health. In 2019, New Mountain contributed to the Signify Health entity another of its portfolio companies, Connecticut-based Remedy Partners, a provider of software and analytics that facilitate large-scale bundled payment programs. The company undertook an IPO in February 2021. Moody's expects Signify to generate 2021 revenue of at least $725 million.

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 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.

Kevin Stuebe
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

Karen Nickerson
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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