Moody's downgrades ModivCare

Moody's Investors Service said it downgraded ModivCare Inc.'s ratings, including the corporate family rating to B2 from B1, the probability of default rating to B2-PD from B1-PD, and the ratings on the senior unsecured notes to B3 from B2. The agency also lowered ModivCare's speculative grade liquidity rating to SGL-3 from SGL-2.

“The ratings downgrade reflects the company's weakened liquidity and elevated leverage. Cash flows have been weak due to working capital pressure tied to contract payables and receivables in the non-emergency medical transportation (NEMT) business, but also elevated transaction and restructuring costs. Ongoing margin pressure in NEMT segment from higher transportation costs and, more recently, labor pressure in the home care segment have also been headwinds.

“Moody's expects ongoing, but more moderate, working capital pressure over the next 12-18 months, and non-core expenses to remain elevated through the end of 2023. As a result, Moody's expects a small amount of positive free cash flow in 2023. Moody's expects debt to EBITDA, which was 4.8x at March 31, 2023, to gradually improve over the next 12-18 months, but remain elevated due to headwinds from Medicaid redeterminations and continued margin pressure in the NEMT segment,” the agency said in a press release.

The outlook remains stable.

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