Moody's rates FHC loans B1

Moody's Investors Service said it assigned a B1 corporate family rating and a B1-PD probability of default rating to FHC Health Systems, Inc. and B1 (LGD3) ratings to the company's proposed $65 million senior secured revolving credit facility and $350 million senior secured term loan. The outlook is stable.

Proceeds from the proposed transaction, along with an infusion of cash equity from Bain Capital Partners, LLC and Diamond Castle Holding, LLC, will be used to effect the merger between FHC Health Systems (dba ValueOptions) and Beacon Health Strategies. The pro forma combined company, FHC Health Systems (New), is expected to be renamed Beacon Health Options once the acquisition closes, which is expected to occur during October.

The agency said the B1 corporate family rating reflects high revenue concentration as well as the company's reliance on certain key contracts. The company's low margin, a result of the high level of revenue contributed from risk-based contracts that include medical costs in their rates, also weighs on the ratings.

Offsetting some of these risks is the company's scale with nearly $2 billion of revenue as well as positive industry trends related to the Mental Health Parity Act and the Affordable Care Act, including Medicaid expansion, that are expected to widen the company's customer base and increase demand for its products and services, Moody’s said.

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