DBRS Places Centric Health Under Review with Developing Implications

DBRS Limited (DBRS) has today placed the ratings of Centric Health Corporation (Centric or the Company) Under Review with Developing Implications following the Company’s announcement that it has entered into a definitive agreement to sell substantially all of the businesses within its Physiotherapy, Rehabilitation and Medical Assessments segment to Audax Private Equity for a cash purchase price at closing of $245 million, plus up to $5 million in contingent consideration. The Company also stated its intention to use a substantial portion of the net proceeds from the sale (expected to be in the $230 million to $235 million range, not including any contingent payment) to pay down debt and significantly reduce the Company’s leverage. The sale is subject to customary closing conditions and is expected to close within 90 days.

Subsequent to the closing of the divestiture, Centric’s business will be composed of two core businesses: Specialty Pharmacy and Surgical and Medical Centres. The Company believes that its leading positions and national networks in Specialty Pharmacy and Surgical and Medical Centres will position each for organic growth and margin improvement. In addition, the divestiture does not include Performance Medical Group, the Company’s orthotics business. The Company will continue to explore strategic, accretive and complementary acquisitions to further strengthen its value proposition as a national provider in the Specialty Pharmacy segment.

Pro forma the divestitures and the acquisition of Pharmacare in March 2015, the Company generated revenue and adjusted EBITDA (as calculated by Centric) of $168.4 million and $14.6 million for the last 12 months ended September 30, 2015.

The Under Review with Developing Implications status reflects the uncertainty around the use of proceeds for the repayment of indebtedness, which includes the Company’s revolving credit facility, Senior Secured 2nd Lien Notes, preferred partnership units and convertible debentures as well as the possible use of a portion of the proceeds to complete acquisitions. In addition, the Company’s strategic review process, which resulted in this transaction, remains ongoing.

In its review, DBRS will focus on (1) the impact from the sale of the Physiotherapy, Rehabilitation and Assessments businesses on the Company’s business risk profile, including organic growth prospects in the remaining segments; (2) the final amount and use of proceeds from the transaction and its impact on the Company’s financial risk profile and the Recovery Rating on the Senior Secured 2nd Lien Notes; and (3) the Company’s longer-term business strategy and financial management intentions.

DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status as soon as possible.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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