S&P Global Ratings views Radiology Partners’ recently completed debt refinancing transactions as “distressed” and “tantamount to a default,” according to a new analysis published Monday.
The country’s largest radiology practice first announced the series of maneuvers Feb. 15. Its strategy included raising $720 million in new “growth equity.” Rad Partners also marked the closing of multiple transactions to push back due dates for various obligations—moves that raised red flags from the New York-based credit ratings agency.
“We view the modifications to the first-lien term loan, secured notes, and unsecured notes, including the extension of maturities, as tantamount to default because we believe lenders received less than the original promise,” analysts Richa Deval and David A. Kaplan wrote Feb. 26. “We recognize that this transaction significantly reduces Radiology Partners' leverage, enhances its maturity profile and liquidity, and provides financial flexibility to pay in kind a portion of its interest, including interest on the new second-lien notes.”
Rad Partners is using proceeds from the capital raise to repay the $380 million balance outstanding on its revolving credit line. Another $168 million will go toward the company’s term loan, while $68 million will cover its secured notes. Meanwhile, the remaining $100 million will cover “transaction related costs and general corporate purposes,” analysts reported.
“S&P took this expected action following the comprehensive financing transactions we completed last week,” Rad Partners said in a statement shared with Radiology Business Monday. “As we announced, these transactions position us for our next phase of growth and investment through a growth equity raise of approximately $720 million and the extension of our debt maturities in full agreement with our lenders. We expect ratings agencies will update their ratings in a matter of days to account for our strengthened financial position, and as a result we and our lenders are focused on the go forward ratings.”
Deval and Kaplan agreed, noting that they plan to reassess the agency’s ratings over the coming days to “reflect the revised structure and improved liquidity and credit profile.” Their CCC+ rating on RP’s revolving credit line remained unaffected by the transactions.
Radiology Partners employs more than 3,600 physicians who service 3,300 hospitals and outpatient facilities across all 50 states. Prior to the equity raise, physicians owned about 33% of the company, with private equity firm Whistler Capital, venture capital group New Enterprise Associates and the Australian sovereign wealth Future Fund holding the balance. RP has not responded to a request for an updated breakdown of its ownership structure following the transaction.
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.