Rating Action: Moody's assigns a B2 rating to Pediatric Associates new DDTL, no change to ratings or outlookGlobal Credit Research - 08 Feb 2022New York, February 08, 2022 -- Moody's Investors Service ("Moody's") assigned a B2 rating to Pediatric Associates Holding Company, LLC's (Pediatric Associates) new $100 million Delayed Draw Term Loan (DDTL). There is no change to the B2 Corporate Family Rating ("CFR"), B2-PD Probability of Default Rating ("PDR"), and B2 ratings to the first lien senior secured credit facilities. The outlook remains unchanged at stable.Pediatric Associates plans to upsize its $600 million Term Loan to $660 million and issue a new $100 million Delayed Draw Term Loan. Proceeds will be used to repay draws on the revolving credit facility, add cash to the balance sheet, finance acquisitions and investments, and pay related fees and expenses. The B2 rating assigned to the proposed DDTL reflect their senior secured interest in substantially all assets of the borrowers and absence of junior capital in the company's proposed capital structure.Assignments:..Issuer: Pediatric Associates Holding Company, LLC....Senior Secured 1st Lien Delayed Draw Term Loan, Assigned B2 (LGD3)RATINGS RATIONALEThe B2 CFR reflects Pediatric Associates' moderately high financial leverage, with Moody's-adjusted debt/EBITDA around 4.5 times pro forma for the proposed transaction. The rating is also constrained by the company's modest scale and significant concentration in two states, Florida and Texas. Further, Moody's believes Pediatric Associates will continue to actively expand through acquisitions that Moody's expects will be funded with a mix of excess cash and additional financial debt. As a result, Moody's expects adjusted debt/EBITDA will remain in a range of 4.0-5.0x over the next 12-18 months.The rating is supported by Pediatric Associates' solid position in the highly fragmented pediatric care market which offers solid growth prospects and good profitability. Despite some exposure to direct government reimbursement (about 50% of revenue is from Managed Medicaid), the rating also incorporates commercial payor diversification, predictable revenue from capitation contracts with commercial payors, and a seasoned executive team.Pediatric Associates will maintain good liquidity over the next 12-18 months, with no near-term debt maturities. Liquidity will be supported by the new 5-year revolving credit facility that provides for borrowings of $100 million, which Moody's expect will be undrawn. This facility has a springing First Lien Net Leverage Covenant of 7.0x when 35% drawn. Moody's expects the company to make minimal draws on this facility over the next 12 months. Alternative sources of liquidity are limited as substantially all assets are pledged. There is no financial covenant on the term loans.In its stable outlook, Moody's expects that Pediatric Associates will operate with a leverage between 4.0-5.0x over the next 12-18 months and will prudently manage its expansion and cash.Moody's considers Pediatric Associates to face social risks such as the rising concerns around the access and affordability of healthcare services. However, Moody's does not consider Pediatric Associates to face the same level of social risk as many other healthcare providers, like hospitals. Given its high percentage of revenue generated from Managed Medicaid, Pediatric Associates is also exposed to regulatory changes and state budget challenges. Among governance considerations, the company is likely to employ high financial leverage and active acquisition strategy to grow its business.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe ratings could be downgraded if Pediatric Associates' operating performance deteriorates, liquidity weakens, or if the company experiences material integration related disruptions. Additionally, the ratings could be downgraded if Moody's expects debt/EBITDA to be sustained above 5.5 times. Further, debt-funded shareholder returns or other aggressive financial policies could also result in a downgrade.The ratings could be upgraded if Pediatric Associates demonstrates a track record of positive free cash flow, and effectively manages its growth with prudent financial policies. Increased scale and diversification would also support an upgrade. Further, the ratings could be upgraded if adjusted debt to EBITDA is sustained below 4.0 times.Pediatric Associates Holding Company, LLC ("Pediatrics Associates") is the largest pediatric practice management company in the highly fragmented U.S. pediatric market. The company employs over 750 clinicians seeing over 3 million annual visits across 6 states (180 locations). Pediatric Associates offers primary and specialty care, laboratory, diagnostic and care management services, as well as 24/7 telehealth access. Pediatric Associates reported revenue of $492 million in the last twelve months ended September 30, 2021.The principal methodology used in this rating was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found 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 disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jaime Johnson Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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