One Call Care Management Inc. #B# Rating Affirmed, Off CreditWatch Senior Secured Debt Rated #B# (Recovery: 3)

Stocks and Financial Services Press Releases Thursday November 14, 2013 08:43
NEW YORK--14 Nov--Standard & Poor's
OVERVIEW
  • One Call Care Management. (One Call), a Parsippany, N.J.-based workers' compensation medical cost containment company, is being acquired by funds advised by private equity firm Apax Partners (Apax) from controlling stockholder Odyssey Investment Partners. Apax plans to merge One Call with another pending acquisition, Align Networks Inc. (Align), over the next several months once both deals have closed.
  • New senior secured debt of $1.345 billion (to be issued at Opal Acquisition Inc., a newly-formed intermediate holding company) and new sponsor equity of $1.2 billion will be used to finance the acquisition and repay all of One Call's existing debt. Pro-forma leverage will be 8.1x including our adjustments (versus 7.5x as presented by management).
  • We are affirming our 'B' corporate credit rating on One Call and removing it from CreditWatch negative. In addition, we are assigning our 'B' issue-level ratings to Opal Acquisition's planned $100 million revolver and $825 million first-lien term loan, with '3' recovery ratings, and our 'CCC+' issue-level rating to the planned $420 million second-lien term loan, with a '6' recovery rating.
  • We are also lowering our issue-level rating on the existing senior secured facility to 'B' from 'B+' and removing it from CreditWatch negative, and revising the recovery rating to '3' from '2'.
  • The negative outlook reflects the potential for one notch downgrade over the next 12 months if the company is unable to execute its deleveraging plan and lower leverage to below 6.5x, which we consider to be the company's sustainable leverage per the 'B' rating. The negative outlook also reflects the merger overhang related to the potential One Call-Align transaction, of which financial terms are still preliminary.

NEW YORK (Standard & Poor's) Nov. 13, 2013--Standard & Poor's Ratings Services said today it affirmed its 'B' corporate credit rating on Parsippany, N.J.-based One Call Care Management Inc. and removed it from CreditWatch with negative implications, where we placed it on Oct. 30, 2013, following the news that One Call was being acquired by Apax Partners. The outlook is negative.

At the same time, we assigned our 'B' issue-level ratings to the newly formed intermediate holding company, Opal Acquisition Inc.'s planned five-year $100 million revolver (to be undrawn at transaction close) and seven-year $825 million first-lien term loan. The recovery ratings on these debt issues are '3' indicating our expectations for a meaningful (50%-70%) recovery in the event of a payment default. In addition, we assigned our 'CCC+' issue-level rating to Opal Acquisition's planned eight-year $420 million second-lien term loan. The recovery rating on this debt issue is '6' indicating our expectations for a negligible recovery (0%-10%) in the event of a payment default.

We are also lowering our issue-level rating on the existing senior secured facility to 'B' from 'B+' and removing it from CreditWatch negative, where we placed it on Oct. 30, 2013. We revised the recovery rating to '3' from '2'. The '3' recovery rating indicates our expectations for a meaningful (50%-70%) recovery in the event of a payment default

"The negative outlook primarily reflects that One Call will have greater financial risk post-transaction than we previously incorporated into the rating, with lease-adjusted leverage increasing to 8.1x, as of pro-forma Sept. 30, 2013. Our leverage calculation accounts for pro-forma EBITDA that includes a full year of recent acquisition results (3i, TechHealth) and realized cost synergies related to those acquisitions," said credit analyst James Sung. "Our previous outlook had assumed that the company's financial policy would tolerate peak leverage of roughly 6.5x (or slightly more than the company's leverage of 6.2x in August 2012 when it acquired MSC Care Management). However, we are comfortable with the company's higher leverage because we view it as temporary. The company plans to lower leverage to below 6.5x by year-end 2014 and we believe this is reasonably achievable because of the company's positive revenue and earnings trends and the generally good cash flow generation."

The negative outlook reflects the potential for one notch downgrade over the next 12 months if the company is unable to execute its deleveraging plan and lower leverage to below 6.5x, which we consider to be the company's sustainable leverage per the 'B' rating. The negative outlook also reflects the merger overhang related to the potential One Call-Align transaction, of which financial terms are still preliminary. We plan to discuss with this transaction in more detail with the One Call management team and Apax Partners over the next several months.

We would consider a stable outlook if the company is able to execute its business strategy in terms of growing revenues by a mid- to high-single-digit growth rate in 2014 and improving its EBITDA margins toward the high end of the 15%-20% range. In addition, the company would need to pay down debt according to plan and maintain leverage below 6.5x on a sustained basis. Moreover, if the company merges with Align Networks, leverage neutral financing along with a successful integration, would also be factors supporting a stable outlook.


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