Moody's rates MultiPlan loans B2, notes Caa1

Moody's Investors Service said it assigned a provisional B2 rating to MultiPlan's proposed $450 million senior secured credit facilities - which includes a $50 million senior secured revolver due 2012 and $400 million senior secured term loan B due 2013 - and a provisional Caa1 rating to its proposed $250 million subordinated notes due 2016. Moody's also assigned a provisional B2 corporate family rating to the company. The outlook is stable.

This follows the Feb. 15 announcement that the Carlyle Group will acquire MultiPlan for $1.04 billion. Carlyle will fund the acquisition and the retirement of $116 million of MultiPlan's existing debt through a $383 million equity contribution as well as the proceeds from the proposed debt financing.

In connection with the proposed acquisition, Multiplan Merger Corp. intends to issue new $450 million senior secured first-lien credit facilities, including a $50 million revolver, and $250 million of senior subordinated notes. Following the completion of the acquisitions, MultiPlan Merger will merge with MultiPlan, the operating entity, and MultiPlan Merger will cease to exist.

Moody's said the ratings reflect the considerable increase in financial leverage, substantial drop in interest coverage and the low level of free cash flow compared to outstanding debt resulting from the proposed transaction. With an increase in debt to $650 million upon the close of the proposed transaction from $116 million at the end of 2005, the debt to adjusted EBITDA for the 12 months ended Dec. 31 will increase to over 6.3x at the end of 2006 from 1.6x at the end of 2005.

The ratings also consider the high concentration of revenues as the top three customers account for almost 40% of revenues, the company's limited size and scope, pricing pressure in its product lines and the competitive nature of the industry, especially for primary PPO network services.

The agency said there are partially offset by low customer turnover, long-term relationships, high customer switching costs and the company's leading market share in the provision of preferred provider organization services.

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