R1 RCM enters $425 million five-year senior secured credit facilities

By Marisa Wong

Morgantown, W.Va., June 26 – R1 RCM Inc. entered into a credit agreement on Wednesday with Bank of America, NA as administrative agent for new senior secured credit facilities, consisting of a $325 million term loan and a $100 million revolver, according to an 8-K filing with the Securities and Exchange Commission.

The term loan and the revolver each have a five-year maturity.

The revolver includes borrowing capacity available for letters of credit and swingline loans.

At closing, the company incurred $60 million of borrowings under the revolver.

The company may request incremental borrowings of up to $115 million plus any additional amounts as long as some conditions, including a consolidated first-lien leverage ratio of not more than 3.25 to 1.00 or compliance with the applicable financial covenants for that period (on a junior or unsecured basis), in each case on a pro forma basis, are satisfied.

The incremental borrowings may be in the form of one or more new term loan facilities, increased commitments under the revolver, one or more series of junior-lien term loans or notes, subordinated term loans or notes or senior unsecured term loans or notes or any bridge facility.

Borrowings under the new credit agreement bear interest at Libor plus an applicable margin of 175 basis points to 275 bps based on the total lien net leverage ratio, subject to a 0% Libor floor.

The company is also required to pay an unused commitment fee ranging from 30 bps to 50 bps, depending on the total lien net leverage ratio.

The credit agreement requires the company to make mandatory prepayments, subject to some exceptions, with: (i) beginning with fiscal year 2020, 50% of the company’s annual excess cash flow; (ii) 100% of net cash proceeds of all non-ordinary course assets sales or other dispositions of property or casualty events, subject to exceptions and thresholds; and (iii) 100% of the net cash proceeds of any debt incurrence, other than debt permitted under the credit agreement.

Beginning Sept. 30, the company is required to repay the term loan portion in quarterly principal installments of $4,062,500 through June 30, 2021, $6,093,750 through June 30, 2023 and $8,125,000 through March 31, 2024, with the balance payable at maturity.

The credit agreement contains two financial covenants. The company is required to maintain at the end of each fiscal quarter, beginning with the quarter ending Sept. 30, a consolidated total net leverage ratio of not more than 4.75 to 1.00. This consolidated ratio will step down in increments to 4.50 to 1.00 beginning with the fiscal quarter ending June 30, 2020, 4.25 to 1.00 beginning with the fiscal quarter ending June 30, 2021 and 3.50 to 1.00 beginning with the fiscal quarter ending June 30, 2022.

The company is also required to maintain at the end of each such fiscal quarter, starting with the quarter ending Sept. 30, 2019, a consolidated interest coverage ratio of not less than 2.50 to 1.00. This consolidated ratio will step up in increments to 2.75 to 1.00 beginning with the fiscal quarter ending June 30, 2020, 3.00 to 1.00 beginning with the fiscal quarter ending June 30, 2021 and 3.25 to 1.00 starting with the fiscal quarter ending June 30, 2022.

Loan proceeds will be used along with cash on hand to, among other things, repay in full all existing debt under the company’s credit agreement dated May 8, 2018 with Bank of America as administrative agent and its subordinated notes issued under a note purchase agreement dated May 8, 2018.

BofA Securities, Inc., JPMorgan Chase Bank, NA, Wells Fargo Bank, NA and Capital One, NA are the joint lead arrangers; BofA Securities, JPMorgan Chase Bank and Wells Fargo Bank are joint bookrunners; and Capital One and KeyBanc Capital Markets, Inc. are co-syndication agents.

R1 RCM is a Chicago-based provider of revenue cycle management and physician advisory services to health care providers.

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