Moody’s upgrades Radiology Partners’ outlook but still sees ‘significant’ risk in Mednax integration
Moody’s upgraded its credit rating for Radiology Partners on Wednesday, July 21, but still sees “significant” risk as the industry giant continues integrating a large acquiree’s imaging business line.
The investors service changed its outlook for the firm from stable to positive, noting a “significant recovery” in patient volumes after steep COVID-related declines in 2020’s second quarter. Moody’s also highlighted El Segundo, California-based Rad Partners’ “materially” expanded scale and geographic reach following its blockbuster $885 million acquisition of Mednax Radiology Solutions last year.
However, Moody’s cautioned the rating reflects “very high financial leverage and execution risk” following the deal.
“The company has grown rapidly in the last five years. This extremely rapid pace of growth carries significant risk, including systems integration, financial reporting and people alignment,” the investors service noted.
Rad Partners’ debt load includes a mix of loans totaling more than $3.2 billion, due between 2024-2028. The practice’s liabilities remained at roughly 8-times its earnings before interest, taxes, depreciation and amortization during the year ending March 31. Moody’s expects Rad Partners’ leverage to remain “very high” for the next 12-18 months, continuing in the 7-8 range.
Meanwhile, its liquidity is solid, Moody’s said, with $62 million in cash and roughly $260 million available under a revolving credit line as of Q1 2021. Absent any further acquisitions or other related costs, analysts expect Rad Partners to generate $100 million of free cash flow, “more than enough” to cover mandatory debt amortization in the next year. Moody’s expects RP will be less aggressive in its acquisition-led strategy in the near term.
Rad Partners is one of the largest doc-led practices in the specialty, employing 2,800-plus radiologists across 3,400 sites including 140 imaging centers in 33 states. Three private equity firms own 62% of the company: New Enterprise Associates (20%), Future Fund (10%) and Starr (32%). Radiologists hold the balance, and Moody’s cited this interplay in its rating review.
“The company's financial policies are expected to remain aggressive reflecting its majority control by a private equity investor,” analysts said. “However, since physicians also own a significant proportion of the company, they will also have a material influence in deciding the company's policies.”
Radiology Partners did not immediately respond to a request for comment on Friday.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.