ModivCare to use cash from Matrix to de-lever, barring acquisitions

By Devika Patel

Knoxville, Tenn., Oct. 5 – ModivCare Inc. has taken on debt for recent acquisitions and plans future acquisitions, but will not take on debt for those.

If needed, the company will sell equity for larger acquisitions, as it hopes to de-lever down to the 3x range from the current leverage ratio, which rose to the mid-3x range from about 1x after selling $500 million of debt in August to fund its purchase of VRI Intermediate Holdings LLC.

The company plans to use money from its Matrix Medical Network business to de-lever, barring any acquisitions on the horizon.

“We’d like our leverage to be in that 3x range versus where it is today,” chief financial officer L. Heath Sampson said at the Deutsche Bank 29th Annual Leveraged Finance Conference on Monday.

“We will not take leverage up higher to make an acquisition.

“The fortunate thing is I think we have the capability, if there was a large acquisition that we needed to make, I think we’d be in a position to raise equity to do that.

“Because of our balance sheet, because of how we are performing, because of the markets we’re in, I think we’d be able to raise equity to make [a large acquisition],” he said.

The company will use cash from its Matrix business to de-lever.

“The other benefit that we have out there is we have our ownership in Matrix, so when Matrix monetizes, assuming there’s no acquisition in the wings, we will likely use that to de-lever,” Sampson said.

“It’s important for us to get down to that 3x [range].

“Since we’ve made these acquisitions, a big [capital allocation priority] right now is to de-lever,” he said.

Last 12 months’ adjusted EBITDA as of June 30 was $233.7 million and net debt was $209 million.

Cash and cash equivalents were $291 million as of June 30.

The company's net leverage ratio has since risen the mid-3x range since June 30 after completing some acquisitions that were financed with $500 million of debt taken on in August.

On Aug. 10, ModivCare priced an upsized $500 million issue of 5% eight-year senior notes (B2/B+) at par to yield 4.998%.

The issue size increased from $400 million.

The yield printed tight to the 5% to 5¼% yield talk.

Deutsche Bank Securities Inc. managed the placement of the notes.

The Atlanta-based health care services provider earmarked the proceeds to support its acquisition of VRI Intermediate Holdings LLC.

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