Acadia Healthcare Co. Inc. 'B' Ratings On CreditWatch Negative On Economic Fallout From COVID-19

  • Acadia recently announced that given evolving market dynamics related to the COVID-19 pandemic, the company has decided to temporarily suspend the sale of its U.K. business until market conditions improve.
  • Acadia has a covenant stepdown in March 2020 and a second one in December 2020. Given current elevated leverage and limited covenant cushion, we believe the risk of a covenant breach is heightened.
  • We are placing our ratings, including our 'B' issuer credit rating and senior secured and senior unsecured issue-level ratings, on Acadia on CreditWatch, with negative implications, reflecting the increased risk of a covenant breach and the potential need to refinance its 6.125% senior notes due March 2021 should the U.K. sale not be completed soon, amid a tight credit market.
NEW YORK (S&P Global Ratings) March 25, 2020--S&P Global Ratings today took the rating actions listed above.
Weak global macroeconomic conditions sparked by the COVID-19 pandemic could freeze credit markets just as the company's covenant steps down and it needs to refinance its unsecured debt.   Given the upcoming stepdown in covenants, one in March and the second in December, we believe the risk of a covenant breach has heightened. The company's credit facilities are subject to a total leverage ratio covenant. The company's agreement including maintenance of a net leverage ratio not to exceed 6x, stepping down to 5.75x in March 2020 and to 5.5x in December 2020. Additionally, the company's 6.125% senior notes are due March 2021 and we expect the company to look to refinance this debt if it has yet to sell the U.K. business, using the proceeds to reduce leverage.
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