As reported by Radiology Business, S&P has downgraded Rad Partners’ credit rating from B- to CCC+ (from vulnerable to speculative/junk)
The full descriptions of those ratings are here:
An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
As in, S&P doesn’t really believe RP can meet its debt obligations unless “favorable” conditions arise. I’ve reported on RP’s financial/PR problems before, including delays in profit-sharing just last week.
There was a great line referenced in the RBJ article that I’m not sure was intended as written or just an amazing Freudian slip (emphasis mine):
“That said, we also understand Radiology Partners’ cost saving initiatives, increased focus on organic growth rather than acquisitions, continued efforts to manage labor market conditions and ability to increase subsidies from providers, will eventually improve profitability and credit metrics,” analysts noted.
Assuredly RP is trying to get subsidies from its hospital contracts, but I suppose in many ways they are also keen on extracting subsidies from their radiologists as well.
Perhaps the recent management resignations (including the Senior VP of Finance and VP of Human Resources so far) are no coincidence either:
S&P said its downgrade also reflects RP’s corporate decision-making, which “prioritizes the interests of the controlling owners, in line with our view of the majority of rated entities owned by private-equity sponsors.”
You can read S&P’s announcement here.
5 Comments
Saying they are “speculative/junk” is probably being generous. And for this line, “increase subsidies from providers”, I have no words. That’s saying the quiet part out loud, so allow me to do the same. RP is a Ponzi scheme. Not like a Ponzi scheme, they ARE a Ponzi scheme, straight up by it’s very definition. They take money from one place, give it to another, thereby attracting others into the fold, who then subsidize or finance something else, and on and on it goes. Obviously this is a house of cards that eventually collapses on itself. With RP I think we are seeing the beginning of the collpase phase.
Never underestimate private equity to do what it takes to survive. No doubt even with the threat of bankruptcy, they will likely just jettison obligations to radiologists in the form of 401K match, shares in the company etc. At the same time they will jettison debt from whatever bondholders they can. Whether or not that is enough to emerge from chapter 11 bankruptcy while keeping an an increasingly PE averse radiologist workforce, remains to be seen. It’s time for some leaders to step up in radiology and form private megagroups if that is what it takes to remain independent of private equity. Undoubtedly, there will be opportunities to scoop up private equity contracts as they fail to provide adequate service and the hospitals get fed up with their shenanigans.
Some of my ex-partners converted up to 40% of their RP buyout into the purchase of RP stock. Well, we all know doctors in Mesa AZ are swimming at the shallow end of the gene pool. A fool and his money are soon parted.