S&P Global Ratings downgraded American Renal Associates Holdings Inc.'s issuer credit rating to B- from B.
The outlook on the Beverly, Mass.-based company, which provides dialysis services in the U.S., is stable.
S&P Global Ratings said ratings were downgraded because it expects American Renal to have weaker EBITDA and cash flows. It added that the company has greater expected portion of in-network claims, which generate lower revenue and margin.
Additionally, the rating agency expects a free cash flow deficit for the year after distribution to noncontrolling interests because of lower EBITDA, higher professional fees and increased interest expense.
The agency sees 2020 as a year of transition for American Renal, which continues to cut general and administrative costs and reduce maintenance and growth capital expenditure.
S&P Global Ratings sees a reduction in future earnings volatility due to more in-network commercial payor contracts as a credit positive. However, it is outweighed by a "permanent reset" of the EBITDA and cash flow profile.
The rating agency expects American Renal's adjusted leverage to remain above 7x in the next two years, as the company drew almost 70% of its revolving credit facility as of June to fund the $32 million settlement with UnitedHealthcare, a UnitedHealth Group Inc. company, along with fees related to the U.S. Securities and Exchange Commission investigation.
American Renal amended its credit agreement in early 2019, which subjected it to higher interest rates. S&P Global Ratings estimates that the company will pay at least $10 million more in interest costs during 2019 compared to 2018.
The stable outlook takes into account the company's ample liquidity, healthy underlying demand for dialysis treatments and the rating agency's expectation for positive cash flow after distribution to noncontrolling interests but before growth capital expenditure.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
