EyeCare Partners, LLC — Moody’s upgrades EyeCare Partners, LLC’s CFR to B3, stable outlook
Rating Action: Moody’s upgrades EyeCare Partners, LLC’s CFR to B3, stable outlookGlobal Credit Research – 16 Mar 2021New York, March 16, 2021 — Moody’s Investors Service, (“Moody’s”) upgraded EyeCare Partners, LLC’s (“ECP”) Corporate Family Rating to B3 from Caa1, the Probability of Default Rating to B3-PD from Caa1-PD, the first lien senior secured bank credit facility to B2 from B3, and the second lien senior secured bank credit facility to Caa2 from Caa3. The outlook is stable.The upgrade reflects ECP’s improved operating performance and liquidity over the last few months as it has mostly returned to pre-pandemic patient volumes. The upgrade also reflects Moody’s view that some of ECP’s cost reductions and process improvements will be a permanent benefit and that margins should improve as ECP expands in scale through both acquisitions and organic growth. Lastly, ECP will be opening a new ambulatory surgery center (ASC) later this year, which will further contribute to margin expansion and reduce overall leverage. As a result, Moody’s expects that debt/EBITDA will improve to under 7.0x within the next 12-18 months.The stable outlook reflects Moody’s expectation that the company’s volumes will continue to improve and that ECP will return to generating positive same store sales growth. The stable outlook also reflects Moody’s favorable view of the longer-term prospects for vision care.Upgrades:..Issuer: EyeCare Partners, LLC.Probability of Default Rating, to B3-PD, from Caa1-PD.Corporate Family Rating, to B3, from Caa1.First Lien Senior Secured Bank Credit Facility, to B2 (LGD3), from B3 (LGD3).Second Lien Senior Secured Bank Credit Facility, to Caa2 (LGD6), from Caa3 (LGD6)Outlook Actions:..Issuer: EyeCare Partners, LLC.Outlook StableRATINGS RATIONALEECP’s B3 Corporate Family Rating reflects its high pro forma adjusted leverage of 8.7x debt/EBITDA (adjusted for acquisitions made in 2020). The rating also reflects the risks associated with the company’s rapid expansion strategy as it grows, predominantly through acquisitions. Further, there remains some integration risk as ECP has been aggressive in growth through acquisitions. The B3 also reflects moderate geographic concentration, with around 41% of revenue generated in two states, Michigan and Missouri, which would make ECP more susceptible to an economic downturn or additional impact from the coronavirus. In addition, while e-commerce penetration in the optical sector is likely to remain moderate, Moody’s expects that, over time, traditional optical retailers will face margin and market share pressure from growing online competition.The rating benefits from the industry’s favorable long-term growth prospects, including growing demand for optometrist and ophthalmological services and eyewear products. This is due to aging demographics and the growing prevalence of myopia and cataracts. Further, ECP’s vertical integration allows it to provide services to patients that cover all their eyecare needs, including optometry, ophthalmology and retail. ECP also owns ambulatory surgery centers, which will benefit from growing demand as patients and payors generally prefer the outpatient environment (primarily due to lower cost and better outcomes) for certain specialty procedures, including cataract surgeries.Moody’s expects the company’s liquidity to be adequate over the next 12-18 months. Free cash flow will be negative in 2021 as ECP will need to repay about $30 million of accelerated payments related to CAREs funds and Moody’s expects some negative working capital impact. That being said, ECP had a cash balance of $100 million and an undrawn $110 million revolver, which Moody’s believes is sufficient to cover any anticipated cash outflows in 2021. In 2022 and beyond, Moody’s anticipates that ECP will generate positive free cash flow.Moody’s considers coronavirus to be a social risk given the risk to human health and safety. Aside from coronavirus, ECP faces other social risks, such as the rising concerns around the access and affordability of healthcare services. However, Moody’s does not consider the eye care providers and ASCs to face the same level of social risk as hospitals as ASCs are viewed as an affordable alternative to hospitals for elective procedures. From a governance perspective, Moody’s expects financial policies to remain aggressive given private equity ownership.The outlook is stable reflecting Moody’s expectation that the company will return to generating positive same store sales growth and will effectively integrate the recently acquired eyecare practices.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be downgraded if ECP’s revenue or profitability weakens or if the company fails to effectively manage its rapid growth. A downgrade could also occur if the company’s liquidity weakens or if the company’s financial policies become more aggressive or if adjusted debt/EBITDA is sustained over 7.5 times.The ratings could be upgraded if ECP demonstrates stable organic growth while effectively executing its expansion strategy. An upgrade would be supported by sustained, stable free cash flow and debt to EBITDA that is expected to be maintained below 6.5 times.EyeCare Partners, LLC (“ECP”), headquartered in St. Louis, Missouri, is the largest medically-focused eye care services provider. ECP is vertically integrated, providing optometry, ophthalmology and retail products. The company supports 587 locations across 18 states including 19 ASCs and generated about $700 million of revenue during the last twelve months ended September 30, 2020. ECP is owned by Partners Group.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.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. 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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. Jaime Johnson Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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