DMG Practice Management Solutions LLC Subsidiaries# Issue-Level Debt Ratings Unchanged On Structure Change

Stocks and Financial Services Press Releases Friday August 11, 2017 09:22
NEW YORK--11 Aug--S&P Global Ratings

NEW YORK (S&P Global Ratings) Aug. 10, 2017--S&P Global Ratings said today that its ratings on multi-specialty physician practice operator DMG Practice Management Solutions LLC (DuPage Medical Group), including the 'B' corporate credit rating, are not affected by the company's proposed changes to its capital structure. The debt is issued by subsidiary Midwest Physician Administrative Services LLC.

The co-issuer of this debt is ACOF V DP Acquiror LLC.

While the capital structure change shifts $40 million in debt from the company's second-lien credit facility to the first-lien credit facility, resulting in higher expected first-lien debt at default, we continue to expect meaningful (50%-70%) recovery for first-lien lenders in a default scenario, although our rounded recovery percentage declines to 55% from 65% as a result of the higher expected debt at default.

Our '6' recovery rating, indicating our expectations for negligible (0%-10%, rounded estimate: 0%) and 'CCC+' issue-level rating on the company's second-lien debt are not affected by the structure change. For the corporate credit rating rationale on DMG, see the research update published on July 31, 2107.

RECOVERY ANALYSIS Key analytical factors: DMG's capital structure consists of a $60 million rate revolver due 2022, a $470 million first-lien term loan due 2024 (pari passu with revolver), and a $150 million second-lien term loan due 2025.We assume the revolver will be 85% drawn and LIBOR of 250 basis points at default.Given the continued demand for its services, we believe DMG would remain a viable business and would therefore reorganize rather than liquidate following a hypothetical payment default.Consequently, we have used an enterprise value methodology to evaluate recovery prospects.

We valued the company on a going-concern basis using a 5.5x multiple off our projected EBITDA at default, which is consistent with the multiple used for similar companies.Simulated default scenario: Simulated year of default: 2020EBITDA at emergence: $58 mil.

EBITDA multiple: 5.5xSimplified waterfall Net enterprise value (after 5% admin. costs): $305 mil.

Valuation split in % (obligors/nonobligors): 100/0Collateral value available to secured creditors: $305 mil.Secured first-lien debt: $523 mil.Recovery expectations: 50%-70%; rounded estimate: 55%Total value available to second-lien claims: $0 mil.Second-lien debt: $157Recovery expectations: 0%-10%; rounded estimate:0%

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