S&P prunes ModivCare

S&P said it downgraded its ratings for ModivCare Inc. and its senior unsecured notes to B- from B and removed the ratings from CreditWatch where they were placed with negative implications on June 5. The recovery rating on the notes remains 4. The outlook is negative.

The company revised its adjusted EBITDA guidance for 2023, after reporting second-quarter results. ModivCare also changed its guidance upward for revenue by about 7% while at the same time lowering guidance for adjusted EBITDA by more than 10%.

“We view prospects for margin and EBITDA expansion as uncertain with utilization continuing to climb. We forecast S&P Global Ratings-adjusted EBITDA margins for the company to be in the high 5% area in 2023 and 2024. Although we expect free cash flow metrics to improve in the second half of the year and into 2024, as large working capital outflows subside, we believe margin compression will limit the company from generating free cash flow to debt of above 3% in 2024,” S&P said in a press release.

The negative outlook reflects the potential for a lower rating, the agency warned.

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