S&P rates Forefront, loans B

S&P said it gave B ratings to Dermatology Intermediate Holdings II Inc. (Forefront Dermatology) and its planned $535 million first-lien term loan, $95 revolving credit facility and $100 million delayed-draw first-lien term loan. The recovery rating on the loans is 3, indicating meaningful (50%-70%; rounded estimate: 50%) recovery in default.

“Dermatology Intermediate (d/b/a Forefront Dermatology) operates in a highly fragmented dermatology market that has relatively limited barriers to entry, in our view. The company generates about $430 million in annual revenue, which is on the smaller end of the range for the rating. Although we believe Dermatology Intermediate is the largest dermatology physician practice in the U.S., its market share in the U.S. dermatology market is less than 2%, limiting the company's pricing power with insurers,” S&P said in a press release.

Partners Group agreed to acquire Forefront in a debt-and equity-funded transaction.

“We expect leverage to remain in the 7x-7.5x range over the next couple of years given the company's private equity sponsor ownership and the company's acquisition and de novo-driven growth strategy,” the agency said.

The outlook is stable.

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