Surgery Partners Inc. Downgraded To 'B-' On Weak Cash Flow; Outlook Stable


  • rentwood, Tenn.-based outpatient surgical services company Surgery Partners Inc. underperformed our expectations for organic revenue growth and EBITDA, and distributions to noncontrolling interest holders (physicians) increased, exceeding our expectations.
  • We now expect free cash flow deficits (after distributions to noncontrolling interest holders) for 2018 and 2019, whereas we previously forecast free cash flow of $20 million-$30 million annually.
  • We are lowering our long-term issuer credit rating to 'B-' from 'B', and are lowering the issue-level ratings by one notch. The outlook is stable.
  • The stable outlook reflects our expectations for low–single-digit percentage revenue growth, supplemented by acquisitions and some margin improvement that will lead to gradually improving free cash flow in 2019 and 2020.
NEW YORK (S&P Global Ratings) Jan. 11, 2019--S&P Global Ratings today took the 
rating actions listed above. The rating action reflects our expectation for 
lower cash flows in 2018 and 2019 following some operating underperformance 
and higher than expected expenses and distributions to noncontrolling interest 
holders. We view the free cash flow deficits (after distributions to 
non-controlling interest holders) and very high adjusted leverage in 2018 
(about 10x excluding preferred equity or 12x including preferred equity) as 
consistent with a 'B-' rating. We previously expected free cash flow of $10 
million-$20 million in 2018 and $20 million-$30 million in 2019.

The stable outlook reflects our expectations for low-single–digit percentage 
revenue growth supplemented by acquisitions and some margin improvement, 
leading to improving cash flow in 2019 (about a $10 million deficit) and 
nearly flat free cash flow in 2020. That leads us to believe the capital 
structure is sustainable in the long term and that the company has the 
liquidity to weather this period of restructuring and investment.
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