An improved financial position and a strategically sound acquisition have resulted in a Moody's Investors Service Ba3 rating for the company's $300 million credit. Bank of America and FleetBoston Financial lead the deal, which is currently in the market (see story, page 3). Team Health, which provides physician staffing and administrative services to hospitals, is buying Spectrum Healthcare Resources for $147 million, explained Russell Pomerantz, v.p. and senior analyst at Moody's. In addition to the new rating, Team Health's $100 million in 12% senior subordinated notes have been upgraded to B2 from B3, due to an improving credit profile since a recapitalization in 1999 and consistent performance.
"Moody's is positive on both the acquisition and Team Health, with expectations the company will perform consistently," said Pomerantz. Leverage should decline gradually as EBIDTA increases and a rating upgrade could be warranted in two or three years, he added. Team Health is the largest provider of its services in the U.S. and long-term trends indicate the market share for the outsourcers will grow at the expense of local doctors and emergency wards controlled by hospitals, he remarked. "Since 1997, the numbers of people using emergency wards has also increased by 2-3% each year," he added. Additionally some analysts suggest increasing hospital admissions for the next four decades.
Negative factors reflected in the rating are the competitive nature of the industry, reimbursement pressures and pricing pressure from Medicare and payors. Greater than expected acquisition activity could also worsen the profile, Pomerantz noted. The loan consists of a $75 million revolver and $75 million "A" term loan, both with five-year tenors and a $150 million six-and-a-half year "B" term loan. The new debt refinances bank debt rated B1, in addition to funding the transaction. "Team Health has significantly deleveraged since 1999, going from 4.5 times debt to EBITDA to 2.2 times on a pro forma basis at the end of 2001," said Team Health CFO, David Jones.