Moody's downgrades FHC Health

Moody's Investors Service said it downgraded FHC Health Systems, Inc.'s corporate family rating to B2 from B1, its probability of default rating to B2-PD from B1-PD and its $65 million senior secured revolving credit facility and $615 million (inclusive of the $265 million add-on) senior secured term loan to B2 (LGD3) from B1 (LGD3). The outlook is stable.

Proceeds from the proposed $265 million first-lien term loan add-on will be used to fund a dividend to the company’s sponsors.

The agency said the downgrade reflects the increase in funded debt and leverage resulting from the incremental $265 million term loan. Moody's views the transaction as reflective of a more aggressive financial policy as it returns a sizable amount of capital to shareholders less than six months after the sponsors invested capital to effectuate the merger between Beacon Health and FHC.

FHC's B2 corporate family rating also reflects the company’s high revenue concentration, reliance on certain key contracts and low margin, the agency said.

Moody’s said that offsetting some of these risks are the company's scale, positive industry trends related to the Mental Health Parity Act and the Affordable Care Act, FHC’s good liquidity profile and Moody's expectation that synergies from the recent business combination of Beacon Health and FHC will continue to benefit operating results.

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