Radiology Partners pivots to ‘junk bonds’ for key acquisition amid weak lending market
Radiology Partners is reportedly pivoting to “junk bonds” for a key acquisition amid a weak lending market.
The country’s largest imaging group had sought to raise $485 million as an add-on to its existing loan due in 2032. However, Rad Partners is now shifting gears, instead selling high-yield bonds as a means to finance its purchase of London-based remote-reading firm Everlight Radiology, Bloomberg reported Tuesday.
An RP representative confirmed the move, noting that the practice marketed its bond to institutional investors and was able to price it in a single day. The bonds carry a 9.75% coupon and were issued at about a one-point discount, for an all-in yield of 10%.
“This is a successful outcome in a challenging financing environment,” Malea Reising, MS, VP of strategic communications for Nashville, Tennessee-based Rad Partners, told Radiology Business Tuesday. “Strong investor demand reflects confidence in our physician practice and the AI-enabled technology behind it.”
Companies typically choose between loans, bonds or a combination of both to fund acquisitions, depending on borrowing costs, Bloomberg notes. However, amid elevated interest rates, they are frequently favoring loans, which can be refinanced early without penalties, among other benefits.
“But the past few days have come with signs that riskier borrowers may be struggling to attract demand in the leveraged loan market as concerns about the sustainability of the artificial intelligence boom continue to spook investors,” Bloomberg reports.
S&P Global noted Tuesday that Rad Partners plans to use the proceeds from these notes—coupled with $180 million in cash and $145 million in rollover equity—to acquire Everlight and pay related fees. Concurrently with the transaction, RP is increasing the capacity of its undrawn revolving credit line from $415 million up to $520 million. The practice also plans to pay down about $67 million of its $832 million, second-lien notes, due in 2030.
In a separate update Oct. 20, Moody’s issued a “stable” outlook for Rad Partners, with expectations it will gradually reduce leverage while maintaining solid liquidity over the next 18 months.
“Radiology Partners' B3 [corporate family rating] is constrained by the company's high financial leverage and an ongoing, industrywide shortage of radiologists, which constrains revenue growth and contributes to margin pressure,” analysts Adam Chaim and Michael Weinstein wrote Tuesday. “The rating is supported by Radiology Partners' strong competitive position as the largest radiology practice in the U.S. within a highly fragmented industry, broad diversification by geography and customer type, stable demand for radiology services, and favorable payer mix,” they added later.
Rad Partners employs over 4,000 radiologists delivering diagnostic and interventional services to over 3,400 hospitals and outpatient facilities across all 50 states. Physician partners own almost 30% of the company, while the remaining equity is held by sponsors including New Enterprise Associates and Whistler Capital Partners, Moody’s notes. The company generated approximately $3.3 billion of revenue for the 12 months ending June 30.
You can read more about its plans to buy Everlight Radiology here.
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.