Southern Veterinary Partners, LLC — Moody’s says SVP’s proposed $100 million term loan add-on and $100 million delayed draw term loan to finance acquisitions are credit negative; no ratings impact

Emily Parkin

Announcement: Moody’s says SVP’s proposed $100 million term loan add-on and $100 million delayed draw term loan to finance acquisitions are credit negative; no ratings impactGlobal Credit Research – 16 Dec 2021New York, December 16, 2021 — Moody’s Investors Service (“Moody’s”) said today that Southern Veterinary Partners, LLC’s (“SVP”) $100 million term loan add-on, along with its new $100 million delayed draw term loan (“DDTL”) used to finance acquisitions are credit negative, but have no impact on the company’s ratings. The ratings include the B3 Corporate Family Rating, B3-PD Probability of Default Rating, B2 ratings on its senior secured first lien credit facilities, and Caa2 ratings on the company’s second lien debt. The ratings outlook remains stable.Proceeds from the term loan add-on along with balance sheet cash will be used to fund acquisitions under letters of intent, and pay related fees. The debt financed transaction is credit negative, as it raises leverage and will increase the company’s annual interest burden by approximately $10 million annually. Moody’s estimates debt/EBITDA will rise to approximately 9.1x (pro forma for the term loan add-on, DDTL, and acquired business under letter of intent), as of September 30, 2021, up from approximately 8.1 times, on Moody’s adjusted basis. Further, Moody’s expect SVP will remain acquisitive and is likely to fund future acquisitions at least partly with incremental debt. Moody’s also said that there is very limited cushion for additional first lien debt at the existing B2 rating on the senior secured credit facilities.Moody’s notes that the company has a track record of successfully integrating acquisitions, which supports the credit profile despite the aggressive acquisition pace. The credit profile is also supported by the company’s good liquidity, with about $79 million of cash, pro forma for the add-on and DDTL, as well as planned acquisitions. This, together with free cash flow of about $60 to $70 million over the next 12 months, provide sufficient coverage for the required 1% mandatory amortization of its first lien term loan of approximately $10 million, annually. SVP’s $30 million revolving credit facility expiring in 2025 (undrawn at the close of the transaction) will provide additional liquidity.Headquartered in Birmingham, Alabama, Southern Veterinary Partners, LLC (“SVP”) is a national veterinary hospital consolidator, offering a full range of medical products and services, operating 280 general practice locations across 18 states. The company generated pro forma revenue of approximately $659 million for the twelve months ended September 30, 2021. SVP is a portfolio company of private equity firm Shore Capital PartnersPlease 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.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Vladimir M. Ronin, CFA 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 Ola Hannoun-Costa 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. 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