Moody's downgraded Diplomat Pharmacy Inc.'s corporate family rating to B3 from B2, citing the deteriorating operating performance of its two major segments, with the outlook changed to developing from negative.
The downgrade reflects Moody's expectations that Diplomat Pharmacy's debt/EBITDA will remain elevated above the 6.0x threshold as the performance of its specialty pharmacy and pharmacy benefit management segments deteriorate. Moody's believes the industry conditions, such as increasing competition and rebranding challenges, will continue to pressure the company's operating performance.
The agency also downgraded the company's probability-of-default rating to B3-PD from B2-PD, and affirmed its SGL-3 speculative grade liquidity rating
Flint, Mich.-based Diplomat Pharmacy operates as a specialty pharmacy and pharmacy benefit manager, or PBM. It is the fifth-largest specialty pharmacy in the U.S. On Aug. 9, the company said it is exploring a potential sale or merger as it looks to maximize shareholder value.
Moody's said the developing outlook signifies the uncertainty around the credit impact of its ongoing strategic review.
The rating agency noted the potential for further erosion in the company's credit profile if operating challenges persist, along with the possibility of a stronger credit profile depending on the result of the strategic review.
The company has appointed Foros Securities LLC as financial adviser and Sidley Austin LLP as legal advisers to assist with its strategic alternatives review.