S&P: AMN Healthcare Services Inc. Assigned 'BB-' Corporate Credit Rating, Stable Outlook; Debt Ratings Assigned
At the same time, we assigned our 'BB+' issue-level rating to operating subsidiary AMN Healthcare Inc.'s senior secured credit facilities, consisting of a $275 million revolver, a $150 million term loan A ($18 million outstanding), and a $75 million incremental term loan A ($72 million outstanding). The recovery rating on the secured credit facilities is '1', indicating our expectation for very high (90%-100%) recovery of principal in the event of payment default. We also assigned our 'B+' issue-level rating to AMN Healthcare Inc.'s proposed $300 million senior unsecured notes. The recovery rating on the proposed notes is '5', indicating our expectations of modest (10%-30%, at the upper end of the range), recovery of principal in the event of payment default.
"AMN Healthcare Services Inc. is a leading provider of health care workforce solutions and staffing services in the U. S.," said S&P Global Ratings credit analyst Matthew O'Neill. The company has evolved from a traditional staffing company to a full service workforce solutions provider. Some of its offerings include managed service programs, vendor management systems, and staffing placement. Its clients include acute-care hospitals, community health centers and clinics, physician practice groups, retail urgent care centers, and many other health care settings. AMN conducts its business through four main service offerings, including staffing and recruitment, workforce solutions, executive leadership, and advisory services.
AMN has benefited from the positive demand environment created by physician and nurse shortages, growing its operations by diversifying its service lines to cross sell its services to new and existing customers. However, AMN has a concentrated exposure to the health care staffing business, which remains fragmented, is highly competitive and cyclical, and has relatively low profit margins and exposure to the economic environment. Still, the company has nearly doubled its revenue base over the past few years and has grown EBITDA margins to around 11%.
The health care staffing sector benefits from favorable trends that include a shortage of health care professionals, an aging population, and health care reform (over the long term). We expect the company's nursing and allied health staffing segment volumes will continue to benefit from an improving economy and market share gains from its growing managed service provider (MSP) contract base.
The stable outlook on AMN Healthcare Services reflects our expectation that the company will benefit from positive EBITDA growth and steady cash flow generation. We expect the company's adjusted debt leverage will remain below 3x over the next 12 months because of its conservative financial policies.
We could lower the rating on AMN if it sustains leverage above 3x, due to a deterioration in business prospects or a significant increase in debt due to an acquisition. A drop in margins by 200 basis points due to an increase in payment to nurses or an adverse pricing environment could prompt a downgrade. We could also lower the rating if AMN experiences an unforeseen operating issue that results in meaningful customer losses and a sharp contraction in EBITDA that results in negligible free cash flow. A downgrade may also result from a $225 million debt-financed acquisition (without considering any additional EBITDA contribution).
We could raise the rating if we expected the company to sustain leverage below 2x due to a 250-basis-point improvement in EBITDA margins. However, we believe this scenario is unlikely in the near term.