Rating Action: Moody's affirms Midwest Physician Admin Svcs' B2 CFR; outlook stableGlobal Credit Research - 24 Feb 2021New York, February 24, 2021 -- Moody's Investors Service ("Moody's") affirmed Midwest Physician Admin Svcs, LLC's (a core operating company of DuPage Medical Group Ltd. referred to herein as "DuPage") Corporate Family Rating at B2 and Probability of Default Rating at B2-PD. At the same time, Moody's assigned a B2 to the proposed Senior Secured 1st Lien credit facilities. The outlook remains stable.The actions follow DuPage's announced refinancing of its existing capital structure. Proceeds from the new debt will be used to repay its existing term loans in full and fund a $209 million distribution to shareholders. The ratings on the existing first lien credit facilities and second lien term loan will be withdrawn upon close.The affirmation of the B2 CFR reflects Moody's expectation that DuPage's debt/EBITDA will decline to about 5.7x by the end of 2022 as DuPage passes the anniversary of 2Q 20, which was most impacted by the coronavirus pandemic. Moody's estimates debt/EBITDA of around 6.6x at FYE 2020 pro forma for the proposed transaction.Moody's expects the company to realize mid-single digit revenue growth and benefit from increasing average revenue per physician as new physicians are on-boarded and their productivity improves. This will be partially offset by higher employee compensation costs. Credit metrics will also be aided by additional earnings generated by DuPage's new surgery center, which is on track to be completed in 2021. The surgery center should serve as a feeder to DuPage's physician practices.Moody's views the shareholder distribution as a credit negative as it points to the aggressive nature of DuPage's financial policies, a key governance issue. DuPage will be meaningfully reducing its cash balance to fund the dividend. Combined with higher gross financial leverage, this will leave DuPage more weakly positioned to absorb any unexpected operating setback or incremental debt. Additionally, Moody's believes DuPage's aggressive policies pose social risks as key customer relations stakeholders include patients, payors and government entities.The assignment of the B2 rating to the new 1st lien credit facilities reflects the fact that all the debt in the capital structure will be pari passu, and is rated B2, the same as the Corporate Family Rating.Assignments:..Issuer: Midwest Physician Admin Svcs, LLC....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD3)....Senior Secured 1st Lien Revolving Credit Facility, Assigned B2 (LGD3)Affirmations:..Issuer: Midwest Physician Admin Svcs, LLC.... Probability of Default Rating, Affirmed B2-PD.... Corporate Family Rating, Affirmed B2Outlook Actions:..Issuer: Midwest Physician Admin Svcs, LLC....Outlook, Remains StableRATINGS RATIONALEDuPage's B2 CFR reflects Moody's expectations that the company's leverage will remain high, increasing to around 6.6x at FYE 2020 pro forma for the proposed dividend. Leverage should improve to 5.7x by the end of 2022 as DuPage passes the anniversary of 2Q 20, which was most impacted by the coronavirus pandemic. The ratings also reflect the risks associated with the company's high degree of geographic concentration given operations are primarily located in the greater Chicago, IL area. The credit profile benefits from the company's multi-specialty business model which provides patients with a broad range of primary and specialist care in an integrated setting. The company has meaningful scale in its markets and has successfully executed an organic and acquisition-led growth strategy.Moody's anticipates that DuPage will maintain good liquidity over the next 12-18 months. The company's liquidity is supported by cash and equivalents of $25 million pro forma for the transaction, down from about $200 million at FYE 2020, and Moody's expectation of positive cash flow from operations. Moody's expects DuPage will repay about $20 million in 2021 and 2022 related to the Medicare Advance payments, but will not need to repay the HHS grants, and that internal liquidity will be sufficient to make these payments. The proposed $100 million revolving credit facility is expected to remain undrawn and will contain a maximum 7.2 times first lien net leverage ratio covenant that is tested when borrowing exceeds 30% of the commitment. While Moody's does not expect the covenant to be tested over the next 12-18 months, Moody's believes the company will have adequate headroom, if tested.The outlook is stable, reflecting Moody's expectation of declining financial leverage due to earnings growth. Moody's believes that DuPage will continue to pursue acquisitions, but that these will be funded largely with internal source of liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if the company substantially broadens its geographic presence, exhibits less aggressive financial policies, sustained improvement in free cash flow, and if adjusted debt/EBITDA is sustained below 5.0x.The ratings could be downgraded if financial policies become more aggressive, including pursuing another shareholder dividend or a large debt funded acquisition. The ratings could be downgraded if any unexpected operating setback materially weakens DuPage's earnings or liquidity. Quantitatively, ratings could be downgraded if adjusted debt/EBITDA is sustained above 6.0 times.The proposed first lien term loans are expected to have no financial maintenance covenants. The proposed revolving credit facility will contain a springing maximum first lien net leverage ratio that will be tested, beginning with the second full fiscal quarter after closing, when the revolver is more than 30% drawn. If tested, the covenant will require first lien net leverage to be below 7.2 times. In addition, the first lien credit facility contains incremental facility capacity up to the greater of $129 million and 100% LTM EBITDA, plus unused general debt basket amounts, plus unlimited additional amounts up to 5.0x first lien net leverage ratio (if pari passu secured), up to 5.25x secured net leverage ratio (if junior secured), and either up to 5.50x total net leverage ratio or so long as the interest coverage ratio is less than 2.0x. Alternatively, the ratio tests may be satisfied so long as ratios are no worse on a pro forma basis. Amounts up to the greater of $64.5m and 50% of LTM EBITDA can be incurred with an earlier maturity date than the first lien term loan maturity date. Asset transfers to unrestricted subsidiaries are permitted subject to carve-outs; there are no "blocker" provisions contemplated. Only wholly owned subsidiaries must provide guarantees, raising the risk that guarantees may be released following a partial change in ownership. There are step-downs in the asset sale prepayment requirement to 50% and 0% upon achieving first lien net leverage ratios 0.50 times and 1.00 times inside the closing date first lien net leverage, respectively.DuPage is a large, independent multi-specialty physician group with over 775 physicians based in 120 locations in/near the greater Chicago, IL area. The company handles over 2 million patient encounters annually. The company generates around $1.1 billion of revenue. The company is owned by affiliates of Ares Management L.P., management and physicians of the company.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jaime Johnson Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Jessica Gladstone, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.