Moody's rates Therapy Brands B3

Moody's Investors Service said it assigned first time credit ratings to Thrive Merger Sub, LLC (Therapy Brands), including a B3 corporate family rating, a B3-PD probability of default rating. The agency also gave B2 ratings to its planned senior secured first-lien term loan due 2028, senior secured first-lien revolving credit facility expiring in 2026 and senior secured first-lien delayed draw term loan and Caa2 ratings to its proposed senior secured second-lien term loan due 2029 and senior secured second-lien delayed draw term loan.

“The B3 CFR reflects Therapy Brands' very small revenue scale, very high debt to EBITDA of over 10 times as of December 31, 2020 pro forma for the announced transactions that Moody's expects will decline to 6.5 times by 2022 and the company's limited operating history in highly competitive and fragmented markets,” the agency said in a press release.

The B2 rating assigned to the senior secured first-lien loans, one notch above the B3 CFR, is driven by the B3-PD PDR and a loss given default assessment of LGD3, their priority lien position ahead of and the loss absorption benefit provided by the junior ranking debt, Moody’s said.

The Caa2 rating given to the senior secured second-lien term loan and delayed draw term loan, two notches below the B3 CFR, is also driven by the B3-PD PDR and an LGD assessment of LGD5, reflecting their ranking junior to and first-loss position to the company's senior secured first-lien obligations, the agency said.

The $320 million of proceeds from the term loans and $970 million of equity from affiliates of financial sponsor Kohlberg Kravis Roberts & Co. LP and management will be used to acquire Therapy Brands, pay transaction-related fees and expenses and add $10 million of cash to the balance sheet.

The outlook is stable. The outlook reflects a forecast for mid-teens revenue growth rates, free cash flow to debt above 3% and debt to EBITDA falling toward 6.5 times in 2022, Moody’s said.

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