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S&P rates KAH B, loans B, CCC+
S&P said it assigned a B issuer rating to KAH Hospice Co. Additionally, it assigned B issue and 3 recovery ratings, indicating meaningful (50%-70%; rounded estimate: 60%) recovery prospects in default to its planned $400 million term loan A, a $1.2 billion first-lien term loan and a $400 million revolver with $103 million drawn at close. The agency also gave CCC+ issue-level and 6 recovery ratings to the company's proposed second-lien term loan, indicating negligible (0%-10%; rounded estimate: 0%) recovery prospects in default.
Private equity firm Clayton, Dubilier, & Rice LLC agreed to acquire a 60% stake in KAH with the remainder held by Humana Inc.
“KAH is one of the larger companies in the highly fragmented and commodity-like market for hospice and home care services, with nearly all revenues coming from government payors. The hospice and home care industry is characterized by largely undifferentiated, commodity-like services, low barriers to entry, and a generally challenging labor market with annual turnover of about 25%-30%. KAH is one of the largest hospice services providers in the U.S., with about $1.5 billion of revenue but market share of only about 7%,” S&P said in a press release.
The outlook is stable. “The stable outlook reflects KAH's decent scale in the hospice business, strong referral sources that will enable the company to generate mid- to high-single-digit annual revenue growth, attractive EBITDA margins, and our expectation for the company to generate meaningful free cash flow over the next 12-18 months. That said, we expect tight labor markets to pressure margins, and we expect adjusted leverage to remain above 7x,” the agency said.
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