GenesisCare USA Holdings, Inc. -- Moody's downgrades GenesisCare's ratings to B2, revises outlook to stable from negative

Rating Action: Moody's downgrades GenesisCare's ratings to B2, revises outlook to stable from negativeGlobal Credit Research - 29 Mar 2021NOTE: On March 31, 2021, the press release was corrected as follows: In the second sentence of the third paragraph of the press release, the issuer name was changed to “GenesisCare USA Holdings, Inc.” Revised release follows.Sydney, March 29, 2021 -- Moody's Investors Service has today downgraded Genesis Care Finance Pty Ltd's (GenesisCare) corporate family rating to B2 from B1, and changed the outlook to stable from negative."IMPORTANT NOTICE: MOODY'S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW."At the same time, Moody's has downgraded the ratings of the backed senior secured term loan B facility entered into by Genesis Specialist Care Finance UK Limited -- a 100%-owned and guaranteed subsidiary of GenesisCare -- to B2 from B1, and changed the outlook to stable from negative. Moody's has also downgraded the backed senior secured ratings of the senior secured term loan B facility entered into by GenesisCare USA Holdings, Inc. -- a 100%-owned and guaranteed subsidiary of GenesisCare -- to B2 from B1. The outlook is stable.RATINGS RATIONALE"The downgrade reflects the impact of GenesisCare's debt-funded expansion on its leverage (Moody's adjusted debt/EBITDA), which we expect to remain above Moody's rating tolerance threshold of 6.0x at a B1 rating level," says Maadhavi Barber, a Moody's Analyst.Moody's expects GenesisCare's leverage will exceed 7.5x over the next 12-18 months as the company continues to integrate its newly acquired US business and grow through clinic expansions. In general, new clinics result in higher leverage from lease commitments, as well as the ramp-up period between opening the clinic and reaching full earnings capacity GenesisCare's elevated leverage also reflects higher debt levels from the debt-funded acquisition of the US business in May 2020, combined with lower earnings as a result of the coronavirus outbreak.The outlook change to stable reflects Moody's expectation that GenesisCare's earnings and credit metrics will steadily improve as patient referrals and volumes return to pre-coronavirus levels, combined with the support to its credit profile provided by its strong liquidity.Moody's expects patients will become more comfortable to attend appointments, or their need to attend appointments will become critical as screenings and treatments have been postponed during the pandemic. However, the rate of recovery in each operating jurisdiction will vary in line with differences in the pandemic's severity. For example, Moody's expect a faster recovery in Australia, compared with a slower and more gradual recovery in the US, UK and Spain.The company has a strong liquidity profile with cash and cash reserves of AUD292 million, as well as a multi-currency AUD200 million revolving credit facility, which is fully undrawn as of 31 December 2020. Moody's expects the company will fund capital expenditures through operating cash flows and existing cash balances, in FY2021.GenesisCare's credit profile remains supported by demographic trends that will further drive growth in the demand for oncology and cardiology services and its strong operating capabilities reflected by its solid margins.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS» The rating could be upgraded if GenesisCare de-levers Moody's adjusted debt-to-EBITDA ratio to 6.0x over the next 12 to 18 months.» The rating could be downgraded if GenesisCare fails to maintain its Moody's adjusted debt-to-EBITDA ratio below 7.5x over the next 12-18 months and liquidity contracts meaningfully, and/or the company's owners engage in aggressive debt-funded acquisitions or capital distributions.ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONSThe ratings also take into consideration the environmental, social and governance factors.GenesisCare, like other health care issuers, has low exposure to environmental risks.The company's ownership structure, which includes a 31.2% stake by Kohlberg Kravis Roberts & Co. L.P. (KKR, unrated), is a material governance consideration. This is because private equity firms tend to prioritize more aggressive growth plans and strategies, including a tolerance for higher leverage.However, Moody's considers these risks are somewhat mitigated by the 32.5% ownership stake of doctors and management. Moody's expects majority shareholder China Resources Holdings Co. Ltd (unrated) will remain a supportive -- although passive shareholder -- as the company grows.Moody's considers the coronavirus pandemic to be a social risk given the risk to human health and safety. Social and demographic trends such as an ageing population will increase demand for GenesisCare's services, particularly in the US, Australia, the UK and Spain. However, the company is exposed to some social risks such as the potential for medical data/privacy breaches or regulatory changes such as the rising concerns around the access and affordability of healthcare services in the US.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILEGenesisCare is a healthcare company focusing primarily on cancer and cardiac care through the provision of radiotherapy and cardiology services. The company currently operates 350 cancer clinics and 200 radiotherapy treatment centers across the US, Australia, the UK and Spain. The company also has a cardiac care business in Australia located across 80 clinics and 20 visiting clinics. GenesisCare is owned by China Resources Group (36.3%), Kohlberg Kravis Roberts & Co. L.P. (KKR) (31.2%) and doctors and management (32.5%).REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Maadhavi Barber Analyst Corporate Finance Group Moody's Investors Service Pty. Ltd. 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