Moody's doesn't know anything about health of the company.....
Global Credit Research - 12 Apr 2016
New York, April 12, 2016 -- Moody's Investors Service, ("Moody's") today downgraded the Corporate Family Rating ("CFR") of Aurora Diagnostics Holdings, LLC ("Aurora ) to Caa3 from Caa2 and the Probability of Default Rating to Caa3-PD from Caa2-PD. Moody's also downgraded the rating on the company's senior unsecured notes to Ca (LGD 5) from Caa3 (LGD 5). Aurora's Speculative Grade Liquidity Rating ("SGL") was lowered to SGL-4 from SGL-3. The rating outlook is stable.
The downgrade reflects Moody's heightened expectation that Aurora will pursue some transaction within the next 12 months which the rating agency would consider a default. This could include a transaction which Moody's considers a distressed debt exchange, or a bankruptcy filing.
Aurora's senior secured credit facility, including its term loans and revolving credit facility, mature on July 31, 2019. The company's senior unsecured notes are due in 2018. However, if Aurora is unable to refinance its senior unsecured bonds before October 14, 2017, the maturity of the credit facility will accelerate and come due on October 14, 2017.
The company's weak operating performance, combined with its debt load, has led to a capital structure which Moody's views as unsustainable. Moody's believes that a refinancing of the company's capital structure in a manner in which all lenders come out whole is unlikely. Moreover, in the event of a distressed debt exchange or bankruptcy, Moody's estimates that bond holders will suffer material losses.
The lowering of the SGL Rating reflects Moody's expectation that the maturity/expiration of the company's bank debt will be accelerated to at least October 2017. It also reflects Moody's expectation for modest free cash flow and declining cash balances over the next 12-18 months. In addition, a significant portion of cash flow is used to fund the considerable interest burden associated with the company's notes, making free cash flow weak.
The following is a summary of Moody's rating actions.
Ratings downgraded:
Aurora Diagnostics Holdings, LLC
Corporate Family Rating to Caa3 from Caa2
Probability of Default Rating to Caa3-PD from Caa2-PD
Senior unsecured notes due 2018 to Ca (LGD 5) from Caa3 (LGD 5)
Ratings lowered:
Aurora Diagnostics Holdings, LLC
Speculative Grade Liquidity Rating to SGL-4 from SGL-3
The rating outlook is stable.
RATINGS RATIONALE
Aurora's Caa3 CFR reflects Moody's belief that there is a high risk that Aurora will pursue some transaction within the next 12 months which the rating agency would consider a default. This could include a transaction which Moody's considers a distressed debt exchange, or a bankruptcy filing. The company is unlikely to be able to sustain its current capital structure given the considerable interest burden associated with the outstanding notes. Thus, Moody's expects the cash requirement to service the interest on the notes will constrain the ability to repay debt and therefore Aurora will continue to operate with considerable financial leverage. Moody's estimates that adjusted debt to EBITDA is likely to remain around 9.0 times. That said Moody's expects that Aurora will continue to actively pursue acquisitions. It also expects that a difficult operating environment, characterized by considerable competition for pathology services and weak growth in test volumes, will continue over the next 12-18 months. Moreover, acquisitions will require reliance on the company's bank revolver.
The stable outlook reflects Moody's view that the Caa3-PD PDR and Caa3 CFR appropriately reflect the high probability of default on Aurora's obligations, as well as the likely family recovery prospects in the event of default.
The ratings could be lowered if Moody's comes to believe that the probability of default has increased, or if expects recoveries in the event of a default to decline.
Given the pressures facing the company, Moody's does not expect to upgrade Aurora's ratings in the near term. However, Moody's could upgrade following a material improvement in Aurora's capital structure.
The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Aurora Diagnostics Holdings, LLC, the parent company of Aurora Diagnostics, LLC (collectively Aurora), through its subsidiaries, provides physician-based general anatomic and clinical pathology, dermatopathology, molecular diagnostic services and other esoteric testing services to physicians, hospitals, clinical laboratories and surgery centers. The company is majority owned by equity sponsors KRG Capital Partners and Summit Partners. Aurora generates approximately $264 million in revenues.
Global Credit Research - 12 Apr 2016
New York, April 12, 2016 -- Moody's Investors Service, ("Moody's") today downgraded the Corporate Family Rating ("CFR") of Aurora Diagnostics Holdings, LLC ("Aurora ) to Caa3 from Caa2 and the Probability of Default Rating to Caa3-PD from Caa2-PD. Moody's also downgraded the rating on the company's senior unsecured notes to Ca (LGD 5) from Caa3 (LGD 5). Aurora's Speculative Grade Liquidity Rating ("SGL") was lowered to SGL-4 from SGL-3. The rating outlook is stable.
The downgrade reflects Moody's heightened expectation that Aurora will pursue some transaction within the next 12 months which the rating agency would consider a default. This could include a transaction which Moody's considers a distressed debt exchange, or a bankruptcy filing.
Aurora's senior secured credit facility, including its term loans and revolving credit facility, mature on July 31, 2019. The company's senior unsecured notes are due in 2018. However, if Aurora is unable to refinance its senior unsecured bonds before October 14, 2017, the maturity of the credit facility will accelerate and come due on October 14, 2017.
The company's weak operating performance, combined with its debt load, has led to a capital structure which Moody's views as unsustainable. Moody's believes that a refinancing of the company's capital structure in a manner in which all lenders come out whole is unlikely. Moreover, in the event of a distressed debt exchange or bankruptcy, Moody's estimates that bond holders will suffer material losses.
The lowering of the SGL Rating reflects Moody's expectation that the maturity/expiration of the company's bank debt will be accelerated to at least October 2017. It also reflects Moody's expectation for modest free cash flow and declining cash balances over the next 12-18 months. In addition, a significant portion of cash flow is used to fund the considerable interest burden associated with the company's notes, making free cash flow weak.
The following is a summary of Moody's rating actions.
Ratings downgraded:
Aurora Diagnostics Holdings, LLC
Corporate Family Rating to Caa3 from Caa2
Probability of Default Rating to Caa3-PD from Caa2-PD
Senior unsecured notes due 2018 to Ca (LGD 5) from Caa3 (LGD 5)
Ratings lowered:
Aurora Diagnostics Holdings, LLC
Speculative Grade Liquidity Rating to SGL-4 from SGL-3
The rating outlook is stable.
RATINGS RATIONALE
Aurora's Caa3 CFR reflects Moody's belief that there is a high risk that Aurora will pursue some transaction within the next 12 months which the rating agency would consider a default. This could include a transaction which Moody's considers a distressed debt exchange, or a bankruptcy filing. The company is unlikely to be able to sustain its current capital structure given the considerable interest burden associated with the outstanding notes. Thus, Moody's expects the cash requirement to service the interest on the notes will constrain the ability to repay debt and therefore Aurora will continue to operate with considerable financial leverage. Moody's estimates that adjusted debt to EBITDA is likely to remain around 9.0 times. That said Moody's expects that Aurora will continue to actively pursue acquisitions. It also expects that a difficult operating environment, characterized by considerable competition for pathology services and weak growth in test volumes, will continue over the next 12-18 months. Moreover, acquisitions will require reliance on the company's bank revolver.
The stable outlook reflects Moody's view that the Caa3-PD PDR and Caa3 CFR appropriately reflect the high probability of default on Aurora's obligations, as well as the likely family recovery prospects in the event of default.
The ratings could be lowered if Moody's comes to believe that the probability of default has increased, or if expects recoveries in the event of a default to decline.
Given the pressures facing the company, Moody's does not expect to upgrade Aurora's ratings in the near term. However, Moody's could upgrade following a material improvement in Aurora's capital structure.
The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Aurora Diagnostics Holdings, LLC, the parent company of Aurora Diagnostics, LLC (collectively Aurora), through its subsidiaries, provides physician-based general anatomic and clinical pathology, dermatopathology, molecular diagnostic services and other esoteric testing services to physicians, hospitals, clinical laboratories and surgery centers. The company is majority owned by equity sponsors KRG Capital Partners and Summit Partners. Aurora generates approximately $264 million in revenues.
