Thomas H. Lee health care roll-up hits rough patch

NEW YORK Thu Dec 6, 2012 11:20am EST

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NEW YORK (Reuters) - Thomas H. Lee Partners, the buyout firm whose holdings include The Nielsen Co and Clear Channel Communications Inc, owns a health-care business that's enduring some growing pains.

A heavy debt load along with other factors recently led Moody's Investors Service to downgrade deeper into junk status the credit rating of inVentiv Health Inc. The company, a provider of marketing, public relations and clinical services to the pharmaceutical, biotechnology and medical device companies, has grown rapidly through acquisition. It is a familiar predicament for private equity-owned companies, which are often tasked with growing while also paying down debt its owners used to buy it.

Thomas H. Lee — which has raised approximately $22 billion from investors during its almost 40-year history — took the company private in 2010 in a $1.1 billion deal. It put up about $396 million of equity. The deal leveraged the company at about 5.25x its estimated EBITDA. inVentiv Health's market held obvious attractions to Thomas H. Lee, as it was replete with smaller companies that could be acquired and merged at a time when pharmaceutical and biotech companies increasingly outsource research and development.

Since its acquisition, the company has grown at a frenetic clip, completing at least 11 acquisitions in the United States and Europe. As of earlier this year the company's strategy included possible expansion into China, Japan, India and South America.

On November 26, Moody's Investors Service downgraded the company's corporate family credit rating to ‘Caa1' from 'B3'. In Moody's nomenclature, B-rated obligations are considered speculative and subject to high credit risk, while Caa obligations are of poor standing and subject to very high credit risk.

The action came due to Moody's "concerns about inVentiv's very high leverage, which continues to increase due to declining year-over-year EBITDA and increased borrowings under the revolver." The company has a $130 million senior secured revolver due 2015 that Moody's downgraded to ‘B2' from ‘B1'.

Moody's estimated that inVentiv Health's debt on a trailing 12-month basis is 8x its EBITDA, and even higher, at 10x EBITDA, when excluding pro-forma adjustments for acquisitions, discontinued operations and future cost-savings and synergies.

Its outlook on the company is negative, as it expects weak liquidity over the next year, "characterized by negative free cash flow, minimal cushion under the company's covenants and substantial usage of the company's revolving credit facility."

The agency also downgraded inVentiv Health's probability of default rating to ‘Caa1' from ‘B3,' and its $1.07 billion senior secured term loan due 2016 to ‘B2' from ‘B1'.

InVentiv Health's breadth may be one of its saving graces. Moody's noted that positive factors in the company's corner include its "significant size, scale and diversity of service offerings." Moody's also said that Thomas H. Lee injected more equity into the company earlier this year, a move which the agency said it found to be encouraging.

Executives at Thomas H. Lee declined a request for comment.

(Buyouts Magazine is a Thomson Reuters publication. Editor: david.toll@thomsonreuters.com; www.buyoutsnews.com)

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