S&P Global Ratings further downgraded Mednax Inc.'s long-term issuer credit rating to B+ from BB-, following the company's sale of its anesthesia business.
The outlook on the rating is stable.
Earlier in May, North American Partners in Anesthesia LLP completed its acquisition of American Anesthesiology Inc., which has been facing multiple business challenges since 2017.
According to the rating agency, the incremental strengthening of the business risk from the sale is more than offset by the considerable increase in debt leverage.
Mednax's adjusted net leverage is estimated to be materially above 5x for an extended time due to severe EBITDA pressure from the COVID-19 pandemic, along with pressure from UnitedHealth Group Inc.'s terminations of all contracts with the company, elevated restructuring costs and increased overhead operating expenses.
Ratings expects leverage to return to about 6x in 2022, as COVID-19-related pressures and restructuring costs subside.
Although the sale materially cuts Mednax's size and diversification, the rating agency sees the company as fundamentally stronger than some of its staffing peers, thanks to its high concentration in the high-margin, relatively stable neonatal segment. The sale also boosts the company's margin profile and lessens reimbursement uncertainties.
Also, while Ratings expects Mednax's EBITDA to suffer materially in the second and third quarters, the rating agency expects the company to maintain sufficient liquidity to absorb significant losses.
The stable outlook reflects the agency's expectation that Mednax will continue to grow through acquisitions and finance them through internally generated cash flow and some incremental debt issuance, keeping its average leverage above 5x over time.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.