S&P Raises MedAssets (MDAS) to 'BB-'; Outlook Stable
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Standard & Poor's Rating Services said today it raised its corporate credit rating on health care services and technology company MedAssets Inc. (Nasdaq: MDAS) to 'BB-' from 'B+'. We removed all ratings from CreditWatch, where we placed them on Nov. 26 with positive implications. The rating outlook is stable.
At the same time, we revised our recovery rating on MedAssets' senior secured debt to '1' from '2', reflecting recent prepayments made on this class of debt. As a result of our notching analysis, we are raising our issue-level rating on this debt to 'BB+' from 'BB-', reflecting the impact of the higher recovery rating and the upgrade to the corporate credit rating. We are also raising our rating on MedAssets' unsecured debt to 'B' from 'B-', reflecting the upgrade. The '6' recovery rating on this debt is unchanged.
"We base our upgrade primarily on a renewed emphasis on profitability in our business risk assessment of MedAssets. After considering MedAssets' consistently high and stable margins relative to peers, we are revising our business risk assessment to "fair" from "weak"" said credit anayst Shannan Murphy. "Consequently, we are raising our rating on MedAssets to 'BB-' from 'B+', consistent with our assessment of a fair business risk profile and aggressive financial risk profile."
Our stable rating outlook on MedAssets reflects our expectation that low-single-digit revenue growth and flat EBITDA margins in 2014 will result in leverage in the high-3x area and FFO to total debt in the high teens, consistent with an aggressive financial risk profile. We could raise the rating if MedAssets is able to strengthen cash flow, improving FFO/debt to the low-20% area. We believe that this would require some margin expansion in 2014, which we do not currently contemplate given already strong levels. We could lower the rating if MedAssets undertook a significant leveraged acquisition or share repurchase, resulting in leverage that we expected to be sustained above 5x. In our view, the company has about $400 million-$500 million in debt capacity at the current rating (assuming no acquired EBITDA).
At the same time, we revised our recovery rating on MedAssets' senior secured debt to '1' from '2', reflecting recent prepayments made on this class of debt. As a result of our notching analysis, we are raising our issue-level rating on this debt to 'BB+' from 'BB-', reflecting the impact of the higher recovery rating and the upgrade to the corporate credit rating. We are also raising our rating on MedAssets' unsecured debt to 'B' from 'B-', reflecting the upgrade. The '6' recovery rating on this debt is unchanged.
"We base our upgrade primarily on a renewed emphasis on profitability in our business risk assessment of MedAssets. After considering MedAssets' consistently high and stable margins relative to peers, we are revising our business risk assessment to "fair" from "weak"" said credit anayst Shannan Murphy. "Consequently, we are raising our rating on MedAssets to 'BB-' from 'B+', consistent with our assessment of a fair business risk profile and aggressive financial risk profile."
Our stable rating outlook on MedAssets reflects our expectation that low-single-digit revenue growth and flat EBITDA margins in 2014 will result in leverage in the high-3x area and FFO to total debt in the high teens, consistent with an aggressive financial risk profile. We could raise the rating if MedAssets is able to strengthen cash flow, improving FFO/debt to the low-20% area. We believe that this would require some margin expansion in 2014, which we do not currently contemplate given already strong levels. We could lower the rating if MedAssets undertook a significant leveraged acquisition or share repurchase, resulting in leverage that we expected to be sustained above 5x. In our view, the company has about $400 million-$500 million in debt capacity at the current rating (assuming no acquired EBITDA).
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