NVA Holdings Inc.'s Proposed $200 Million Incremental First-Lien Term Loan Rated 'B' (Recovery Rating: '3')


Rating Action Summary:

Trust metric by Artificial Intelligence: 88 out of 100 with 200 metrics

TORONTO (S&P Global Ratings) April 18, 2019--S&P Global Ratings today assigned its 'B' issue-level rating and '3' recovery rating to NVA Holdings Inc.'s proposed $200 million incremental first-lien term loan. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 50%) recovery in the event of a payment default.
The company will use the proceeds from this incremental term loan to fund acquisitions and refinance its revolver borrowings.
All of our other ratings on NVA Holdings remain unchanged.
Our issuer credit rating on NVA reflects the company's leading market position and narrow operating focus in the highly fragmented veterinary practices market. The rating also reflects our expectation that the company will remain acquisitive and maintain high adjusted leverage of more than 7x.
For the complete issuer credit rating rationale, please see our most recent research update on NVA Holdings, published March 1, 2019, on RatingsDirect.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
  • NVA's capital structure consists of a $140 million revolver, a $1,358 million first-lien term loan ($1,351 million outstanding), the proposed $200 million incremental term loan, $500 million of senior secured notes, and approximately $36 million of subordinated seller notes.
  • We have valued the company on a going-concern basis using a 5.5x multiple of our projected emergence EBITDA.
  • We assume that in a default scenario NVA's EBITDA would decline significantly due to a prolonged economic downturn, which leads to a sharp decline in its revenue and weakens the performance of its centers.
Simulated default assumptions
  • Simulated year of default: 2022
  • EBITDA at default: $173 million
  • EBITDA multiple: 5.5x
Simplified waterfall
  • Net enterprise value (after 5% administrative costs): $904 million
  • Valuation split (obligors/nonobligors): 92%/8%
  • Priority claims: $0
  • Collateral value available to first-lien creditors: $879 million
  • Secured first-lien debt: $1,675 million
  • --Recovery expectations: 50%-70% (rounded estimate: 50%)
  • Value available to unsecured claims: $25 million
  • Total unsecured claims: $1,334 million
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
Notes: All debt amounts include six months of prepetition interest. Collateral value equals asset pledge from obligors after priority claims plus equity pledge from nonobligors after nonobligor debt.
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