S&P: Acadia Healthcare notes B

Standard & Poor's said it assigned a B rating and 5 recovery rating to Acadia Healthcare Co. Inc.'s proposed $390 million senior unsecured notes due 2024.

The proceeds, along with a new equity issuance and new term loan B, will be used to finance the acquisition of Priory Group No. 1 Ltd.

The 5 recovery rating indicates 10% to 30% expected default recovery.

The BB- rating and 2 recovery rating on the existing revolving credit and term loan facilities are unchanged. The 2 recovery rating indicates 70% to 90% expected default recovery.

The corporate credit rating on Acadia is B+ and the outlook is stable.

While this transaction will prevent pro forma adjusted debt leverage from decreasing to an earlier forecasted level of less than 5x in 2016, it does not change a view of financial risk.

The company has a track record of using equity to help fund acquisitions to limit leverage spikes, S&P said.

Similar to prior acquisitions, the agency said it expects pro forma leverage to fall to an estimated range of 4x to 5x, aided by synergies of the transaction and growth from current operations.

Acadia's has a weak business risk profile based on its narrow focus on behavioral health, despite substantial scale in this fragmented sector, S&P said.

The agency also has exposure to reimbursement risk and solid growth prospects in behavioral health.

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