Ratings agencies are reacting favorably to imaging industry giant RadNet’s $1 billion in debt maneuvers.
The Los Angeles-based outpatient chain announced April 3 that it plans to refinance a $679 term loan and $195 revolving credit line. In their place, RadNet Inc. would take on a new $840 million term loan and $250 million credit line, using at least part of the funds to fuel growth initiatives.
Both S&P and Moody’s issued analyses shortly after the announcement, highlighting RadNet’s strong revenue growth, competitive position and liquidity.
“The [company’s] rating also benefits from the long-term trend of imaging volumes migrating away from hospitals to lower cost settings as well as the diversification of revenues through the multi-modality capabilities of RadNet's sites,” Moody’s analysts Adam Chaim and Ola Hannoun-Costa wrote April 3.
S&P said it expects RadNet to use the proceeds to pay off the existing $679 million loan, cover $13 million in transaction fees and increase cash on its balance sheet. Altogether, the company is taking on about $160 million of additional debt with the refinancing. Analysts said the deal will increase RadNet’s debt-to-earnings ratio from 4.4x to 4.8x, but they see leverage decreasing to around 4x over the next year and a half.
S&P maintained its B+ credit rating while highlighting the company’s “decent scale” (with $1.6 billion in annual revenue), “good profitability” (low-20% EBITDA margins), and “strong” revenue growth.
“These are offset by aggressive leverage (generally 4x-5x), an aggressive growth strategy involving substantial spending on growth capital expenditure, and limited barriers to competition,” analysts Richa Deval and David A Kaplan wrote for S&P on April 4.
Both agencies expect RadNet will use cash to fuel expansion, with the company just recently entering Houston and voicing its intent to grow further. Moody’s projected upward of $70 million in annual free cash flow over the next 18 months and $670 million in cash flow following the refinancing. The company will have access to a $250 million undrawn revolving credit line and another $50 million credit facility, with the latter held by RadNet’s New Jersey Imaging Network subsidiary. Annual amortization of loans remains “modest,” at approximately $8 million. But capital expenditure requirements are “material, given the need to maintain expensive diagnostic equipment.”
RadNet bills itself as the leading provider of freestanding, fixed-site outpatient diagnostic imaging services in the U.S. It now owns or operates a network of 377 outpatient centers and counting, concentrated in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York, and Texas.
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.