Moody's trims Knight Health

Moody's Investors Service said it downgraded Knight Health Holdings LLC (ScionHealth) corporate family rating to B3 from B2, the probability of default rating to B3-PD from B2-PD, and the senior secured term loan to B3 from B2. The agency also revised the outlook to negative from stable.

“The ratings downgrade reflects Moody's expectations that ScionHealth's leverage will likely remain elevated for an extended period. Moody's estimates ScionHealth's debt to EBITDA will increase to over 7x by FYE 2022 driven by rising labor costs and interest rate expense. Moody's expects debt/EBITDA will remain elevated and liquidity to be weak beyond the next 12-18 months,” the agency said in a press release.

Although Moody’s said it expects the contemplated acquisition of Cornerstone Healthcare Group will be leverage neutral, there is potential for disruptions and challenges in integration as ScionHealth continues to complete its restructuring efforts after last year's combination of businesses and separation from LifePoint Health, Inc.

“The negative outlook reflects Moody's view that operating expenses will continue to pressure profitability and liquidity in the near term. This will pose challenges to the company's pace of deleveraging as well as cash flow generation,” the agency said.

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