DBRS Comments on Centric Health’s Debt Reduction Plans

DBRS Limited (DBRS) today notes the announcement on January 4, 2016, by Centric Health Corporation (Centric or the Company) that it has completed the previously announced sale of substantially all of the businesses within its Physiotherapy, Rehabilitation and Medical Assessments segment for cash consideration of $245 million, subject to working capital adjustments, plus up to $5 million in contingent consideration.

DBRS also notes the Company’s intention to use a substantial portion of the net proceeds from the sale (approximately $232 million) to repay debt, including Centric’s intention to offer to purchase all of the $190 million of outstanding 8.625% Senior Secured 2nd Lien Notes (the Notes) within the next 30 days. The Company may use excess proceeds for the settlement of other outstanding debt (i.e., revolving credit facility, preferred partnership units and/or convertible debentures) and/or for accretive general corporate and other growth initiatives.

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

On November 25, 2015, DBRS placed Centric’s ratings Under Review with Developing Implications following its announcement that it had entered into a definitive agreement to sell substantially all of the businesses within its Physiotherapy, Rehabilitation and Medical Assessments segment for a cash purchase price at closing of $245 million. At the time, DBRS stated that its review would focus on (1) the impact from the sale 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 Notes; and (3) the Company’s longer-term business strategy and financial management intentions.

DBRS will continue its review as additional information becomes available, including the results of the offer to repurchase the Notes and planned uses for any excess proceeds. If the Notes are repaid in full, DBRS will discontinue its rating on the Notes at that time.

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

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.