On April 11, 2007, Standard & Poor's Ratings Services assigned its loan and recovery ratings to
IASIS Healthcare LLC's proposed secured financing, which consists of a $200 million revolving credit due 2013, a $40 million synthetic revolving credit facility due 2014, a $150 million delayed draw term loan due 2014, and a $439 million term loan due 2014. This secured debt is rated 'B' (the same as the corporate credit rating on
IASIS) with a recovery rating of '2', indicating the expectation for meaningful (80%-100%) recovery in the event of a payment default. Proceeds from the financing will be used to refinance the company's existing bank facility, fund certain capital expenditures, and pay a large $300 million one-time preferred equity repurchase from its sponsor, The Texas Pacific Group.
(For the complete corporate credit rating rationale, see Standard & Poor's
research report on IASIS Healthcare Corp. published earlier today.)
Table 1
IASIS Healthcare Corp.--Credit Profile
Corporate credit rating
B/Stable/-
Facility/Issue
Issue rating
Recovery rating
Expected recovery (%)
Maturity
Repayment
$200M revolving credit facility*
B
2
80-100
2013
Bullet
$40M synthetic revolving credit facility*
B
2
80-100
2014
Bullet
$150M delayed term loan*
B
2
80-100
2014
Bullet
$439M term loan*
B
2
80-100
2014
Bullet
*Borrower is IASIS Healthcare LLC.
Recovery Analysis
Simulated default scenario
Standard & Poor's believes the most likely path to default would involve significant reimbursement issues that might include a reduction in Medicare reimbursement, adverse rate changes in managed care contracts, or the loss of key contracts because of local market competition. Our simulated default scenario contemplates:
Operating margin erosion that challenges the borrower's ability to meet its debt service requirements;
A fully drawn revolving credit facility;
A 200-basis-point increase in LIBOR because of rising interest rates; and
An additional 200-basis-point increase in the borrower's cost of capital due to credit deterioration.
Valuation
In evaluating recovery prospects associated with the underlying collateral, Standard & Poor's used an enterprise asset methodology, as the company would likely retain greater value as an ongoing entity in the event of default due to the important services it provides to the communities in which it operates. The hospital industry is very competitive, with uncertain reimbursement rates. As a hospital service provider, IASIS's value is important due to its integral relationships with its physicians and customers, as well as its ability to deliver high-quality service. However, one of the uncertainties to any valuation is the potential for litigation by the government. Consequently, we used the enterprise value methodology to gauge recovery prospects, employing a distressed EBITDA multiple of 6x. Our calculated valuation excludes IASIS's health plan, Health Choice, because it cannot be pledged. Incremental facilities of up to $400 million are not considered in this evaluation because they are not committed.
Results
Using the 6x multiple under our simulated default scenario, we expect meaningful (80%-100%) recovery of principal for secured lenders.
Transaction Summary
Table 2
Transaction Summary
Borrower
IASIS Healthcare LLC
Guarantor
The guarantors include the holding company, IASIS Healthcare Corp., and all of the borrowers existing and subsequently acquired wholly owned domestic subsidiaries, except for certain exceptions. Each guarantor that becomes a non-wholly owned subsidiary of the borrower as permitted by the senior secured facilities documentation will be automatically released from its guarantee.
Structure
The financing consists of $200 million revolving credit due 2013, a $40 million synthetic revolving credit facility due 2014, a $150 million delayed draw term loan due 2014, and a $439 million term loan due 2014 All loans outstanding under the revolving credit facility will become due and payable upon maturity.
Security package
Borrowings are secured by subtantially all material, owned assets of the borrower and each of the guarantors and pledgors including a perfected first priority pledge of all equity interests of the borrower and each of its subsidiaries, perfected security interests in, and mortgages on, substantially all tangible and intangible assets. Each guarantor that is released from its guarantee shall remain a "pledgor".
Legal jurisdictions/issues
New York has legal jurisdiction.
Key covenants
There will be no financial covenants.
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