Envision Healthcare at high risk of bankruptcy or major restructuring, Moody's warns

Moody’s Investors Service has issued a scathing corporate credit rating downgrade to Envision Healthcare, assigning the physician staffing service and ambulatory surgery center operator its lowest possible junk rating and warning that a bankruptcy or major restructuring is likely on the horizon.

The bond credit rating agency wrote in a Wednesday rating action that Envision will see weak liquidity over the next 12 to 18 months and is forecast to deplete its (as of June 2022) $1.4 billion cash reserve by the end of next year.

Although Envision is one of the country’s largest physician staffing outsourcers, pandemic-related volume declines and more recent labor pressures paint a picture of declining profitability in the months to come, Moody’s wrote.

Additionally, Envision “faces significant social risk” due to “significant negative publicity relating to the patients its physicians treat receiving surprise medical bills” and will remain financially challenged by the No Surprises Act implemented across the country in January, Moody’s wrote.

The company’s highly publicized contract dispute with UnitedHealth is also unlikely to resolve, the rating agency predicted, leaving Envision out of the nationwide payer’s networks.

Sitting against this backdrop was a recent series of credit restructuring transactions across Envision and its ASX subsidiary, AmSurg, that Moody’s deemed “to be a distressed exchange as the loans were exchanged at a price below par, which is a default under Moody’s definition.” The company had previously executed a “distressed exchange” in April 2020.

Moody’s downgraded the ratings of a slew of Envision’s loans and gave the company itself a corporate family rating of “C”—the lowest score on its long-term rating scale, reflecting a belief that a company likely will not be able to honor all its financial obligations and that its debts have “little prospect for recovery of principal and interest.”

“The ratings downgrade reflects Moody's view that Envision's capital structure is unsustainable, that the probability of a bankruptcy or major restructuring is high, and that recovery rates for much of the company's debt will be low,” the ratings agency wrote.

Envision was bought out by private equity firm KKR in 2018 for $10 billion and, according to Moody’s, saw $7 billion in 12-month revenues ending June 30, 2022. It operates more than 250 ambulatory surgery centers across 34 states in addition to its large network of outsourced physicians.

Fierce Healthcare has reached out to the company for additional comment on the downgrades and its long-term financial stability.