S&P Global downgraded Akumin’s credit rating Friday as the publicly traded radiology provider faces “significant headwinds.”
The Plantation, Florida, firm has grappled with recent setbacks including labor and supply chain challenges, delays in recognizing synergies from its merger with Alliance Healthcare Services, and “relatively soft” patient volumes. Combined, these factors have led to “weaker-than-expected” margins and limited revenue growth, S&P noted.
Akumin posted a cash-flow deficit of $7.5 million in 2022, meaning more money is going out than coming in. The company holds a loan with lender Stonepeak carrying a balance of some $451 million, which has been accruing interest for two years. Beginning Sept. 1, the agreement switches to “cash pay,” increasing annual interest expenses by about $50 million, the New York-based ratings agency estimated.
“The impending mandatory conversion of Akumin's subordinated debt interest payment to cash pay from payment-in-kind will dramatically increase the company's operating cash flow deficit, raising the risk its debt will be unsustainable,” credit analysts David P. Peknay and Viktoria Kovalenko wrote Friday. “We believe the upcoming conversion to cash pay, coupled with the recently announced formation of a special committee of the board, raises prospects for a restructuring event that could include a distressed transaction,” they added.
Akumin leaders revealed the formation of the committee during the company’s second-quarter earnings on Aug. 9. The group will include representation from lender Stonepeak, working to devise potential solutions to Akumin’s financial challenges. S&P estimated that the company’s cash-flow deficit will increase to about $45 million in 2024, including a full year of interest requirements on its subordinated debt.
S&P has downgraded Akumin’s rating from B- to CCC, a “speculative grade” denoting its debts are “currently vulnerable and dependent on favorable business, financial and economic conditions” to meet commitments. Peknay and Kovalenko also issued a negative outlook, which “reflects the risk that, absent a significant operating improvement, the company's debt might not be sustainable.”
“We could raise the rating if the company successfully restructures its debt without any distressed exchanges and we believe it will have adequate liquidity over the next 12 months,” the analysis concluded.
Akumin did not immediately respond to a Radiology Business request for comment sent Monday.
S&P also downgraded Radiology Partners in June as the industry giant similarly grapples with a heavy debt load.
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.