Reuters logo
Fitch Downgrades Mydentist to 'B-'; Withdraws Ratings
August 25, 2017 / 2:17 PM / a month ago

Fitch Downgrades Mydentist to 'B-'; Withdraws Ratings

(The following statement was released by the rating agency) LONDON, August 25 (Fitch) Fitch Ratings has downgraded Turnstone MidCo 2's (Mydentist) Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Stable. We have also downgraded the senior notes issued by IDH Finance PLC to 'B' from 'B+' and Mydentist's super senior revolving credit facility (RCF) to 'BB-' from 'BB'. The Recovery Ratings for the senior notes and the RCF remain at 'RR3' and 'RR1', respectively. Concurrently, we have also withdrawn Mydentist's IDR and instrument ratings for commercial reasons. Today's downgrade reflects Mydentist's higher leverage and weaker coverage ratios post refinancing to levels more commensurate with a 'B-' rating, following profit margin deterioration and continued units of dental activity (UDA) underperformance. As a result Fitch projects funds from operations (FFO) adjusted net leverage to peak around 8.6x and FFO fixed-charge cover to weaken to 1.4x. The rating, however, remains underpinned by the strengths of the rebranded Mydentist (previously IDH), and its leading market position in the UK's National Health Service (NHS) dental sector, characterised by long-term contracts supporting stable cash generation. KEY RATING DRIVERS Continued UDA Under-Delivery: The ratings reflect decreased (UDA) delivery at 90.4% in FY17 (financial year ended March 2017) compared with 92.4% in FY16 and management's guidance of flat near-term delivery. This was the result of a change in the underlying patient mix and increased NHS scrutiny over delivery, claims and performance benchmarks, which we view as an industry-wide trend to improve the system's value and service. As a result Mydentist's productivity suffered with new management taking active measures to recover UDA performance. This includes increasing the number of dentists, actively managing dentist productivity, and streamlining administration, in addition to increasing the share of private treatments. Margin Deterioration: We expect EBITDA margin to stabilise at 10.5% in FY18 before gradually increasing under assumed low single-digit sales growth and slow recovery in UDA delivery. This follows a decline in EBITDA margins to 10.9% in LTM 1Q FY18, from 11.7% in FY17 and 14.2% in FY16, primarily driven by reduced gross margin as a result of increased usage of locums in dental practices and adverse FX impact on the Dental Directory division, increases in both headcount and living wage, as well as an increasing share of the lower-margin private and Dental Directory businesses in total revenue. Weak Leverage & Financial Flexibility: As a result of a larger amount and the high cost of debt following the recent refinancing and profit deterioration due to UDA underperformance and FX impact, FFO adjusted net leverage increased to 7.9x in FY17 (vs. 6.7x in our prior rating case projections) and is expected to increase further to 8.6x in FY18 in light of the even weaker operating results in 1Q FY18. FFO fixed charge cover weakened to 1.6x (vs. 2.0x as per prior expectation) and is expected to decrease further to 1.4x in FY18. We view these metrics as commensurate with a 'B-' rating. Elevated Execution Risk: New management has been put in place to tackle the challenges the company is facing. Strategy has been changed to limit acquisitions and focus on productivity of existing practices. There are plans to improve business performance. However, actions will take time to feed into performance. In order to drive growth, capex is still needed to improve facilities to attract privately funded patients. Failure to turn around could compromise the deleveraging profile. UK's Largest Dental Practice: Mydentist is the largest dental corporation in the UK and is almost twice the size of its closest competitor Oasis, now owned by Bupa. The company's dominant market positioning and size make Mydentist an important market participant and provides it with benefits of scale in terms of sourcing, administration, and marketing. DERIVATION SUMMARY Fitch places Mydentist in the hospital & care home subsector of the healthcare sector. It is characterised by limited geographic diversification; however, it has a leading position in the UK dentistry market. It is the largest dental corporation in the UK and is almost twice the size of its closest competitor Bupa. The ratings are also underpinned by NHS contracts, which support Mydentist's defensive business model and stable cash generation. KEY ASSUMPTIONS Fitch's expectations are based on the agency's internally produced, conservative rating-case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate. Key Fitch forecast assumptions are listed below. - Slow recovery in UDA delivery and NHS contract handbacks leading to a decline in NHS revenue for the next two years. - 10% annual growth in the private segment. - Moderate growth in Dental Directory (10% in FY18 and 5% p.a. thereafter). - Growth in group revenue of 1.1% in FY18 and 1.8% in FY19. - EBITDA margin declining to 10.5% in FY18 before slowly recovering towards 11.5% in FY21. - No acquisition of dental practices in FY18 and FY19 as management shifts focus to performance improvement over external growth. RATING SENSITIVITIES Not applicable. LIQUIDITY Satisfactory Liquidity Profile: With no material debt maturity over the next five years post refinancing, Mydentist's liquidity is satisfactory, with GBP12.8 million of readily available cash available at end-June 2017 and GBP100 million of an undrawn committed RCF. Contact: Principal Analyst Louise Liu Analyst +44 20 3530 1660 Supervisory Analyst Frank Orthbandt Director +44 20 3530 1037 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Pablo Mazzini Senior Director +44 20 3530 1021 Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. Summary of Financial Statement Adjustments - Lease obligations have been capitalised using the multiple of 8x. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below