Moody's rates QoL loans B2

Moody's Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to QoL meds, LLC and a B2 (LGD4) rating to the company's proposed first-lien senior secured credit facilities, which include a $30 million revolving credit facility and a $285 million term loan. The outlook is stable.

The company plans to use loan proceeds, combined with new cash equity from its financial sponsors, to fund the acquisition of Genoa Holding Co., Inc. and to refinance existing debt.

Despite the initial high leverage (around 6.5 times debt/EBITDA excluding synergies and losses add-backs from recently opened facilities), the B2 corporate family rating reflects Moody's anticipation of deleveraging over the next 12 to 18 months to around 5 times.

The agency said the B2 corporate family rating reflects QoL's small scale in a narrow market niche, its high leverage, its modest operating margins, the business risks associated with its heavy reliance on government programs such as Medicare and Medicaid for more than 90% of its total revenue and its high revenue and earnings concentration in several states and hence exposure to state budget pressure and health-care reform.

The rating is supported by QoL's market position as the leading on-site pharmacy operator for community mental health centers in the United States following the Genoa acquisition and by the company's recent track record of maintaining and improving operating margins despite reimbursement pressures, Moody’s said.

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