Research: Rating Action: Moody’s Confirms CHG’s B2 CFR, Outlook Changed from Negative to Stable

New York, September 16, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed the B2 Corporate Family Rating (CFR) and B2-PD Probability of Default rating of CHG Healthcare Services, Inc. (“CHG”). Moody’s also affirmed the B1 rating of the company’s senior secured senior credit facility consisting of a term loan and a revolver. At the same time, Moody’s changed the outlook from negative to stable.

The rating affirmation reflects the improvement in the company’s business which experienced a temporary downturn in 2020 and early 2021. The company has regained its ability to generate consistent positive free cash flow and remains the leader in the locum industry sub-sector.

The change in outlook to stable reflects CHG’s moderate financial debt profile. The company’s debt/EBITDA grew more than 8x at the end of 2021 when it paid a substantial one-time dividend, partially funded by additional debt. The company reduced its financial leverage to 5.6 times at the end of June 2022, thus supporting a change in outlook.

Confirmed ratings:

Issuer: CHG Healthcare Services, Inc.

…… Corporate Family Rating, confirmed at B2

…… Confirmed probability of default rating at B2-PD

…… $150 million senior secured revolving credit facility expiring in 2026, confirmed at B1 (LGD3)

…… $1.58 billion senior secured term loan due 2028, confirmed at B1 (LGD3)

Action Outlook:

Issuer: CHG Healthcare Services, Inc.

The outlook has changed from negative to stable

RATINGS RATIONALE

CHG’s B2 CFR reflects its high leverage and niche focus in the locum industry. With business volumes improving, Moody’s expects the company’s debt to EBITDA to remain in the 5.0 to 6.0 times range. The company’s CFR is limited by its aggressive financial policies reflected by its recent history of paying dividends to shareholders. The company’s ratings benefit from good scale and a leadership position in the fragmented locum market, positive long-term fundamental trends in locum demand and a demonstrated track record of good cash flow and profit growth. CHG further benefits from the diversification of physician specialties and minimal concentration among clients.

The CHG rating is limited by the company’s aggressive financial policies. In the three years before the pandemic (i.e. 2017-2019), the company paid around $237 million in dividends. The company paid no dividends in 2020, which was the year most affected by the pandemic. However, it resumed its dividends with a payout of $560 million in September 2021, part of which was funded by debt incurred as part of the refinancing operation. Moody’s expects the company to continue paying dividends with available cash.

Moody’s considers CHG’s liquidity to be very good. Liquidity is supported by approximately $55 million in available cash and approximately $140 million available under the company’s $150 million revolver. Moody’s expects CHG to generate $160-180 million in operating cash flow over the next 12 months, which will easily cover $55-65 million in investments and around $16 million in Mandatory debt amortization.

CHG’s B1 rating on the Senior Secured Senior Revolver and Term Loan is a notch above its B2 CFR. This reflects the first loss absorption provided by a significant amount of junior debt in the form of $430 million of junior second lien debt due 2029 (unrated).

Social and governance considerations are important to the rating, given the significant implications for public health and safety. Although CHG does not face direct reimbursement risk, pricing pressure on its customers from regulatory changes could partially trickle down to the business as customers seek to reduce costs. It could also result in weakened volume growth as vendors may become more cautious in their use of alternates. Governance risks include CHG’s aggressive financial policies reflecting its private equity participation and the payment of debt-funded dividends.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The rating could be downgraded if CHG’s financial policy becomes more aggressive, liquidity deteriorates, and demand for CHG’s locum physician services/supply declines sustainably. Although the historical level of dividend payouts is already factored into Moody’s analysis, any outsized dividend payouts will put pressure on the company’s ratings. Quantitatively, if the company’s debt/EBITDA is maintained above 6.0x, the rating could be downgraded.

Moody’s could raise the rating if CHG deleveraging sustainably such that total debt/EBITDA is kept below 5.0x. An upgrade would also require the company to maintain strong organic earnings growth and a good liquidity profile with increasing levels of free cash flow.

The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

CHG is a provider of temporary healthcare staffing services for hospitals, doctors’ offices and other healthcare facilities in the United States. CHG derives the majority of its revenue from the temporary staffing of physicians, but also provides travel nursing, paramedic, and permanent placement services. CHG reported revenue of $2.5 billion for the twelve months ended June 30, 2022.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

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Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

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Kailash Chhaya, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
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Ola Hannoun-Costa
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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