Research: Rating Action: Moody’s confirms RadNet’s B2 CFR and revises outlook to positive

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New York, March 29, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed RadNet Management, Inc.’s (“RadNet”) B2 Corporate Family Rating (CFR), Probability of Default rating B2-PD and B1 rating on the senior secured credit facility. Moody’s also revised the outlook from stable to positive and raised the company’s speculative liquidity rating (SGL) from SGL-1 to SGL-2.

The revision to the outlook from stable to positive reflects the company’s full recovery from the impact of the coronavirus pandemic and Moody’s view that this recovery will be sustainable. The change in outlook also reflects RadNet’s improved financial leverage, EBITDA margins and liquidity in 2021.

The B2 CFR assertion reflects Moody’s expectation that RadNet’s business volume and revenue growth over the next 12-18 months will be comparable to pre-pandemic levels and the company’s financial leverage will remain in the low range of 4 times.

The company’s SGL rating upgrade reflects improved liquidity supported by Moody’s expectations of $40-50 million in annual free cash flow and the company’s $134 million in liquidity as of December 2021. RadNet’s liquidity is further supported by extended debt maturities as the company refinanced its capital structure in April 2021.

Statement:

..Issuer: RadNet Management, Inc.

…. Classification of the family of companies, confirmed B2

…. Probability of default rating, confirmed B2-PD

…. $195 million senior secured revolving credit facility expiring in 2026 at B1 (LGD3)

…. $725 million senior secured term loan due 2028 at B1 (LGD3)

Updates :

..Issuer: RadNet Management, Inc.

…. Speculative liquidity rating, upgrade to SGL-1 from SGL-2

Outlook Actions:

..Issuer: RadNet Management, Inc.

….Outlook from stable to positive

RATINGS RATIONALE

RadNet Management, Inc’s B2 CFR is limited by its geographic focus in six states, with most of its facilities located in California, New York and Maryland. Moody’s estimates that the company’s financial leverage was around 4.3x at the end of December 2021. The rating is limited by the company’s high fixed costs, including large CAPEX and high interest charges.

The company’s ratings benefit from its strong competitive position in its main markets. The rating also benefits from the diversification of revenues thanks to the multimodality capabilities (including X-rays, CT scans, MRIs, ultrasound and mammography) of its sites. The company’s payer diversity is good with approximately 57% of revenue coming from commercial payers who offer higher reimbursement rates than government payers.

RadNet’s liquidity is very good and is supported by Moody’s expectations of $40-50 million in annual free cash flow, $134 million in cash and approximately $187 million available to draw under the $195 million revolver. of the company as of 12/31/2021. The company has only a modest mandatory annual amortization of its first lien term loan (~$7 million), although its capital expenditure needs are significant given the need to maintain expensive diagnostic equipment.

Social risks are important to RadNet given the significant implications for public health and safety. RadNet was significantly impacted by the coronavirus outbreak in 2020, but the company’s business volumes have largely recovered since then. The medical imaging services business is also exposed to certain social risks as the services may be provided out of network and may be subject to government regulations such as the No Surprises Act of 2022. As a publicly traded company , RadNet’s transparency, disclosures, accountability and compliance are likely to be better than those of its private equity peers.

The B1 rating of Radnet’s senior secured revolving credit facility and term loan is one notch higher than the company’s B2 CFR. The senior secured credit facilities benefit from the cushion provided by the existence of a significant amount of unsecured trade payables and denial of lease claims. The Revolver and Term Loan are secured by a first lien on substantially all of RadNet’s assets.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The company’s ratings could be improved if it increases scale and geographic diversification. Additionally, Moody’s would consider an upgrade if the company’s adjusted debt/EBITDA was kept below 4.5 times. Additionally, a disciplined growth strategy and a stable repayment environment are necessary for an upgrade.

Ratings could be downgraded if the company’s operational performance and/or liquidity position weakens for reasons such as the changing trajectory of the pandemic, labor shortages and inflation. Quantitatively, Moody’s could downgrade if debt/EBITDA is held above 5.5x.

The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. You can also visit the rating methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Rating symbols and definitions from Moody’s are available at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the ratings tab on the respective issuer’s issuer/entity page on www.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy on the Designation and Assignment of Unsolicited Credit Ratings available on its website www.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and which Moody’s office issued the credit rating is available at www.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating is available at www.moodys.com.

Please check www.moodys.com for updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory information for each credit rating.

Kailash Chhaya, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
United States
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Ola Hannoun-Costa
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
United States
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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