CDRH Parent Inc. Downgraded To 'CCC+' On Greater Risk Of Debt Restructuring; Outlook Negative; Debt Ratings Also Lowered

  • Jacksonville, Fla.–based wound care services provider CDRH Inc. (doing business as Healogics Inc.) reported a decline in net revenue primarily due to lower HBO treatments and center count, which, coupled with its heavy debt burden, has weakened liquidity, bringing the EBITDA-to-interest-coverage ratio to about 1.0x.
  • Despite the recently launched innovation services and solutions business, we see escalated risk for a debt restructuring before the revolver and term loan become due on July 1, 2021.
  • We are lowering our issuer credit rating on CDRH Parent Inc. to 'CCC+' from 'B-'
  • At the same time, we are lowering the issue-level rating on the company's senior secured term to 'CCC+'. We are also revising the recovery rating to '4' from '3', indicating our expectation of average (30%-50%; rounded estimate: 45%) recovery in the event of a payment default.
  • The negative outlook reflects our opinion about the lack of significant improvement in operating performance, especially ahead of its need to successfully refinance is debt maturing in 2021. However, we do expect that Healogics will remain in compliance with its financial covenants, limiting the risk of a restructuring over the next year.
NEW YORK (S&P Global Ratings) May 14, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade reflects our view that the company will struggle to significantly improve financial performance, eliminate cash flow deficits, and service its very high debt level, leading us to believe that current debt levels may be unsustainable ahead of Healogics' need to refinance its debt in 2021. Healogics continues to experience operational setbacks, including ongoing declines in the number of clinics managed and in hyperbaric oxygen therapy chambers (HBOTC) treatment volumes. We believe Healogics may be dependent on its revolver capacity to meet future obligations. Although we do not expect the company to breach leverage covenants, we expect EBITDA in 2019 will fall short of interest expense and capital expenditures.
The negative outlook reflects our belief that ongoing cash flow deficits and weakening liquidity, will reduce the chances that the company can meets its debt obligations and successfully refinance its 2021 maturities in absence of material improvements. The outlook also incorporates our expectation that Healogics will remain in compliance with its financial covenants, limiting the risk of a restructuring over the next year.
We could lower the rating if the impact of new initiatives fall short of the level necessary to boost operating performance and cash flow enough to sustain its debt. This would diminish the likelihood that the company can refinance its revolver and term loan, both due in 2021. This could materialize if the company experiences operational setbacks, including a continued decline in the number of clinics managed and HBOTC treatment volumes, or unexpected setbacks in its new innovation segment. This would lead us to believe the company is unable to sustain the burden of fixed obligations in the capital structure over time.
We could revise the outlook to stable if the company's progress in its innovation segment exceeds our expectations and if it grows its core clinics segment enough to generating positive free cash flow. We believe this is necessary to support a debt refinancing prior to the 2021 term loan maturity.
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