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Leveraged Finance: Issuer Spotlight: Top-250 CLO Obligors (Various Ratings Actions Taken In The Health Care Sector)

What's New:

Recently, S&P Global Ratings took various rating actions on issuers in the health care sector, several of which are among the top-250 most widely held collateralized loan obligation (CLO) obligors. The actions reflected our view that these issuers, along with many others, face various company-specific challenges from the effects of the coronavirus pandemic.

Acadia Healthcare Co. Inc.

On March 25, 2020, we placed all of our ratings, including our 'B' issuer credit rating, on Acadia Healthcare Co. Inc. on CreditWatch with negative implications. Acadia decided to temporarily suspend the sale of its U.K. business until market conditions improve. The company's covenant stepped down in March 2020 and will step down again in December 2020. Given its currently elevated leverage and limited covenant cushion, we believe the company needs to refinance its unsecured debt to mitigate the risk of a covenant breach because the weak global macroeconomic conditions stemming from the coronavirus pandemic could freeze the credit markets. We will lower our ratings on Acadia if we believe the company will have difficulty obtaining a waiver for a potential covenant breach or refinancing its debt.

Acadia develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities, and facilities that provide outpatient behavioral health care services in the U.S. and U.K.

Surgery Partners Inc.

On March 25, 2020, we placed all of our ratings on Surgery Partners Inc., including our 'B-' issuer credit rating, on CreditWatch with negative implications. The coronavirus pandemic will significantly reduce Surgery Partners' revenue, EBITDA, and cash flow in 2020 relative to our prior base-case assumptions due to the rapid decline in demand for elective surgical procedures. The U.S. Surgeon General and the American College of Surgeons have recommended that all elective surgical procedures be postponed to conserve supplies and safety equipment and limit the spread of the coronavirus. We believe Surgery Partners may recapture some of the deferrals at a later date when the surgeries are rescheduled. Nonetheless, we anticipate that there will be some leakage for a variety of reasons, including some patients electing to forego procedures as well as limited scheduling availability when patient demand rebounds.

If the company is unable to address its cash flow and liquidity concerns, among other potential issues, we may lower our ratings. Alternatively, we could remove our ratings from CreditWatch if we gain confidence that the company's liquidity will remain adequate for at least the next 12 months or it is able to successfully maintain or improve its EBITDA.

Surgery Partners Inc. owns and operates a network of surgical facilities and related services in the U.S.

Envision Healthcare Corp.

On April 6, 2020, we lowered our issuer credit rating on Envision Healthcare Corp. to 'CC' from 'B' and our issue-level rating on its senior unsecured notes to 'CC' from 'CCC+'. The outlook is negative. We also placed our issue-level rating on the company's senior secured first-lien debt on CreditWatch with negative implications. Our '3' recovery rating on the senior secured term loan and '6' recovery rating on the senior unsecured notes remain unchanged.

Envision proposed an exchange offer for its unsecured notes due 2026 at a significant discount to par. Specifically, the company is offering to exchange these notes for a new secured term loan with the same tenor. We believe this transaction, if completed, would constitute a selective default.

We could lower our issuer credit rating on Envision to 'SD' (selective default) and our issue-level rating on its senior unsecured notes to 'D' after the transaction closes. We may lower our issue-level rating on the company's existing senior secured debt when we reconsider its issuer credit rating following the completion of the distressed exchange and the issuance of the new term loan.

Envision Healthcare Corp. owns and operates physician-led services, ambulatory services, and post-acute services in the U.S.

LifePoint Health Inc.

On April 6, 2020, we lowered our issue-level rating on LifePoint Health Inc.'s secured debt to 'B' from 'B+' and revised our recovery rating to '3' from '2' due to the increase in the company's total amount of senior secured debt. LifePoint is issuing notes to provide it with extra liquidity while it manages through a substantial decline in patient volume related to the deferral of elective procedures because of the coronavirus pandemic. We expect the company's operating performance to return to more normal levels over the intermediate term. Our issuer credit rating on LifePoint is 'B' and we currently have a stable outlook on the company.

LifePoint Health Inc. owns and operates acute-care hospital services in the U.S.

Polaris Intermediate Corp. (doing business as MultiPlan)

On April 6, 2020, we revised our outlook on Polaris Intermediate Corp. (d/b/a Multiplan) to negative from stable and affirmed our 'B+' issuer credit rating. We expect MultiPlan to experience top-line losses and anticipate that its debt to EBITDA could rise above 7x on a sustained basis due to business disruption stemming from the nationwide efforts to contain the spread of the coronavirus. As hospitals across the country cancel or postpone elective procedures, we expect the volume of claims that MultiPlan processes to decline, especially in the second quarter. We anticipate that the company's revenue and EBITDA will begin to expand again by the fourth quarter of 2020.

The negative outlook reflects our view that MultiPlan has limited capacity for underperformance as the pandemic introduces additional uncertainty to its operating performance in 2020. For example, we could lower our rating in the next 12 month if the company's financial leverage increases above 7x, its EBITDA interest coverage falls below 2x, or we view its business profile as weaker due to the delay or loss of key contracts.

MultiPlan is a U.S.-based health care cost-containment solutions provider.

BSL CLO Exposure Ranking:

Envision Healthcare Holdings Inc.

LifePoint Health Inc.

Surgery Partners Inc.

Polaris Intermediate Corp.

Acadia Healthcare Co. Inc.

Ranking (top-250 obligors held in U.S. BSL CLOs fourth-quarter 2019) 15 35 124 170 206
Number of managers exposed 70 41 35 40 39
Average exposure 0.55% 0.57% 0.34% 0.36% 0.44%
Maximum exposure 1.16% 1.36% 1.26% 1.13% 2.20%
Mininmum exposure 0.04% 0.18% 0.04% 0.01% 0.03%
BSL--Broadly syndicated loan. CLO--Collateralized loan obligation.

--% of AUM of S&P-rated CLOs--
Manager

Envision Healthcare Holdings Inc.

LifePoint Health Inc.

Surgery Partners Inc.

Polaris Intermediate Corp.

Acadia Healthcare Co. Inc.

Aegon USA Investment Management 0.60% 0.43%
AIG Asset Management 0.47% 0.20% 0.58% 0.43% 0.09%
Alcentra 0.68% 0.57% 0.22%
Allstate Investment Management 0.81%
Anchorage Capital Group 1.36%
Angelo, Gordon & Co. 0.93%
Apollo Credit Management 1.16% 0.01%
Ares Management 0.39% 0.58% 0.23% 0.39%
Arrowpoint Asset Management 0.19% 0.58%
AXA Investment Managers 0.20% 0.44% 1.04%
Bain Capital Credit 0.21% 0.12% 0.08% 0.10%
Barings 0.79% 0.20%
Benefit Street Partners 0.53% 0.51% 0.24% 0.34%
Black Diamond Capital Management 0.52% 0.45% 0.31%
BlackRock Financial Management 0.62% 0.55%
BlueMountain Capital Management 0.63% 0.51% 0.29% 0.03%
Bradford & Marzec 1.78%
Brigade Capital Management 0.98% 0.73%
Canyon Capital Advisors 0.94% 0.84%
Carlson Capital 0.73% 1.26% 0.71%
Carlyle Investment Management 0.44% 0.22% 0.13%
Chicago Fundamental Investment Partners 0.94% 1.02% 0.89%
CIFC Asset Management 0.27% 0.37% 0.14%
Columbia Management Investment Advisers 0.43% 0.31% 0.06% 0.26%
Credit Suisse Asset Management 0.35% 0.05%
Credit Value Partners 0.17%
Crescent Capital Group 0.49% 0.64% 0.13%
CVC Credit Partners 0.22% 0.17% 0.36%
Denali Capital 0.45% 0.62%
Deutsche Asset Management 0.66% 0.36% 1.18%
Eaton Vance Management 0.64% 0.20% 0.24%
Five Arrows Managers 1.00%
Fortress Investment Group 0.04% 0.17%
GC Investment Management 0.04%
GLG Partners 2.20%
GoldenTree Asset Management 0.87% 1.09%
Goldman Sachs International 0.24% 0.74% 0.14%
Greywolf Capital Management 0.99% 0.75%
GSO/Blackstone Debt Funds Management 0.70% 0.51% 0.32% 0.17% 0.03%
H.I.G. WhiteHorse Capital 0.86% 0.60%
Halcyon Loan Management 0.33% 0.30% 0.05%
Highbridge Principal Strategies 0.04%
Highland Capital Management 0.95% 0.59% 0.49% 1.62%
Investcorp 0.53% 1.09%
Jefferies Finance 0.10% 0.37%
Kingsland Capital Management 1.04% 0.56%
KKR Financial Advisors 0.91% 0.30% 0.38% 0.22%
Kramer Van Kirk Credit Strategies 0.62% 0.94%
LCM Asset Management 0.58% 0.47% 0.44%
Marathon Asset Management 0.51% 0.17%
Mariner Investment Group 0.35% 0.62% 0.25% 0.42% 0.30%
MidOcean Credit Fund Management 0.46% 0.36% 0.17% 0.86%
MJX Asset Management 0.44% 0.25%
Napier Park Global Capital 0.35% 0.22% 0.36%
NCC CLO Manager 0.29% 0.23%
Neuberger Berman 0.35% 0.11% 0.71% 0.28%
Newfleet Asset Management 0.98% 0.41% 0.40%
NewStar Financial 0.07% 0.10%
Oak Hill Advisors 0.20% 0.15%
Oaktree Capital Management 0.61% 0.05% 0.09% 0.24%
Och-Ziff Loan Management 1.12% 0.18% 0.36%
Octagon Credit Investors 0.17% 0.46% 0.04% 0.21% 0.12%
Onex Credit Partners 0.51% 0.32%
Orchard First Source Asset Management 0.44% 0.92%
Palmer Square Capital Management 0.41% 0.49% 0.41% 0.39% 0.35%
Par-Four Investment Management 0.78% 0.22% 0.26% 0.11%
Park Avenue Institutional Advisers 0.81% 0.54%
PineBridge Investments 0.52% 0.23% 0.55%
Prudential Investment Management 0.47% 0.60% 0.24% 0.36% 0.07%
Romark CLO Advisors 0.42% 0.32% 0.66% 0.33%
Seix Investment Advisors 0.42% 0.27% 0.66%
Sound Point Capital Management 0.38% 0.97%
Steele Creek Investment Management LLC 0.32%
Symphony Asset Management 0.70% 0.59% 0.18% 0.25%
TCW Asset Management 0.35% 0.31% 0.71%
Teachers Advisors 0.60% 0.48% 0.27%
THL Credit Senior Loan Strategies 0.44% 0.72%
TPG Capital 0.21%
Trimaran Advisors 0.31% 0.15%
Trinitas Capital Management 0.66% 0.45% 0.48% 0.33%
Voya Investment Management 0.55% 0.18% 0.32% 0.22% 0.15%
West Gate Horizons Advisors 0.51% 0.24%
Western Asset Management Co. 0.51% 1.13%
ZAIS Group 0.68% 0.63%
AUM--Assets under management. CLOs--Collateralized loan obligations.

Related Research

  • Envision Healthcare Corp. Downgraded To 'CC' On Proposed Distressed Exchange Offer; Outlook Negative, April 6, 2020
  • LifePoint Health Inc.'s Proposed $80 Million Term Loan And $500 Million Senior Secured Notes Rated, April 6, 2020
  • Polaris Intermediate Corp. Outlook Revised To Negative On Heightened Risk; 'B+' Rating Affirmed, April 6, 2020
  • Surgery Partners Inc. Ratings Placed On CreditWatch Negative On Liquidity Concerns Related To The Coronavirus Pandemic, March 25, 2020
  • Acadia Healthcare Co. Inc. 'B' Ratings On CreditWatch Negative On Economic Fallout From COVID-19, March 25, 2020
  • LifePoint Health Inc. Outlook Revised To Stable From Positive On Economic Fallout From COVID-19; Ratings Affirmed, March 25, 2020

This report does not constitute a rating action.

Primary Credit Analysts:Robert E Schulz, CFA, New York (1) 212-438-7808;
robert.schulz@spglobal.com
Daniel Hu, FRM, New York (1) 212-438-2206;
daniel.hu@spglobal.com
Secondary Contacts:Jeffrey Loo, CFA, New York + (212) 438-1069;
jeffrey.loo1@spglobal.com
Sarah Kahn, New York (1) 212-438-5448;
sarah.kahn@spglobal.com
Julie L Herman, New York (1) 212-438-3079;
julie.herman@spglobal.com
Joseph N Marinucci, New York (1) 212-438-2012;
joseph.marinucci@spglobal.com
Viral Patel, New York +1 212-438-2403;
viral.patel@spglobal.com
David P Peknay, New York (1) 212-438-7852;
david.peknay@spglobal.com
Contributors:Zoya Alam, New York;
zoya.alam@spglobal.com
Minni Zhang, New York;
minni.zhang@spglobal.com

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