DBRS Comments on Centric Health’s Reacquisition of its Senior Wellness and Home Care Operations

DBRS Limited (DBRS) today notes the announcement on January 15, 2015, by Centric Health Corporation (Centric or the Company) that it will reacquire all of the issued and outstanding shares of Community Advantage Rehabilitation, Inc. (CAR) and Active Health Services Ltd. (Active Health), which were sold to Lifespan Health and Wellness Limited (Lifespan) in May 2014 for aggregate proceeds of $14.5 million. Consideration for all of the outstanding shares of CAR and Active Health will be the full repayment of the two promissory notes with principal amounts of $2.5 million and $12 million issued in favour of Centric by Lifespan.

On March 24, 2014, DBRS placed the ratings of Centric Under Review with Negative Implications following the Company’s announcement that it had entered into a definitive agreement to sell 100% of the common shares of its CAR and Active Health businesses (previously known as Senior Wellness operations). Centric’s Issuer Rating was previously rated B (high), and its Senior Secured 2nd Lien Notes were rated B (high) with a Recovery Rating of RR4.

On June 23, 2014, DBRS maintained the Under Review with Negative Implications following the Company’s announcement that it had entered into a definitive agreement to sell its retail and home medical operations to Birch Hill Equity Partners for $50 million. The Company subsequently announced the sale of its methadone pharmacy operations for proceeds of $20 million. DBRS stated at the time that its review would focus on (1) the impact from the Company’s divestitures on the business risk profile, (2) the use of proceeds from the sales (investment in growth and/or debt repayment) and its impact on the Company’s financial and business risk profile and (3) the Company’s longer-term business strategy and financial management intentions.

Since that time, the Company has announced that its strategic focus will be on core higher-margin operations in Physiotherapy, Rehabilitation and Wellness, Specialty Pharmacy, and Surgical and Medical Centres. In addition, the Company used $10 million from the proceeds of its divestitures to permanently repay and reduce its revolving credit facility to $40 million from $50 million as well as temporarily repaying an additional $15 million while it evaluates the best deployment of such $15 million, whether it be through some combination of permanent repayment of the credit facility or redemption of its Senior Secured 2nd Lien Notes or preferred partnership units. The Company has also indicated that the remaining proceeds could be used to complete acquisitions of complementary high-margin businesses or for further debt repayment.

As such, DBRS will continue to focus its review on (1) the Company’s use of the remaining proceeds (investment in growth and/or debt repayment) and the impact on the Company’s financial and business risk profiles and (2) Centric’s updated long-term business strategy and financial management intentions.

DBRS will proceed with its review, and as additional information becomes available, will aim to resolve the Under Review status as soon as practical.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Services Industry and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on our website under Methodologies.