Investing.com -- Moody’s Ratings has affirmed the Caa1 ratings for Aveanna Healthcare LLC, including its corporate family rating, probability of default rating, and ratings on its senior secured first and second lien term loans. Additionally, the outlook for Aveanna has been revised to positive from stable.
This decision by Moody’s reflects an improvement in Aveanna’s business performance and a decrease in leverage over the past year, along with an expectation of continued gradual improvement in the upcoming quarters. The company’s operational improvements are attributed to stabilization of labor costs, better execution, and more efficient cash collection. However, Aveanna’s interest rate hedges are expected to roll off between June 2026 and February 2027, which could expose the company to higher interest rates and potentially impact its free cash flow negatively. As of December 28, 2024, Aveanna’s adjusted debt-to-EBITDA ratio was approximately 8.4 times.
The Caa1 rating reflects Aveanna’s high financial leverage, business concentration in California, Texas, and Pennsylvania, and exposure to potential cuts in government reimbursements. The company’s debt/EBITDA ratio is expected to remain in the mid-7.0 times range over the next 12 to 18 months. The rating is also influenced by Aveanna’s heavy reliance on Medicaid reimbursement through its Private Duty Services (PDS) business, which accounts for approximately 81% of the company’s revenue.
On the positive side, Aveanna’s rating benefits from its leading position in the fragmented market of pediatric home health services, and its expanding presence in the home health and hospice segment. Aveanna’s strategy to grow its home health and hospice businesses is expected to enhance its credit profile through improved service line and payor diversity.
Aveanna’s liquidity, considered adequate (SGL-3), was supported by $84 million in cash as of December 2024. The company is projected to generate slightly positive free cash flow of around $10-$20 million over the next 12 months. Liquidity is further backed by access to a $170.4 million revolving credit facility, of which approximately $138 million was available as of December 28, 2024.
The company’s senior secured first lien credit facility, composed of a $170.4 million revolving credit facility and a $920 million term loan, are both rated B3, one notch above the Caa1 CFR. This reflects the benefit of a layer of loss absorption provided by the $415 million second lien term loan, which is rated Caa3.
The positive outlook reflects expectations of improving business performance and corresponding deleveraging over the next 12 months.
The ratings could be upgraded if Aveanna continues to decrease its leverage and improve its operating performance and financial metrics. Conversely, the ratings could be downgraded if Aveanna experiences significant reimbursement reductions, further wage pressures, pursues aggressive financial policies, or shows sustained negative free cash flow.
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