Research Update: ASP NAPA Intermediate Holdings LLC Ratings Lowered To 'B-' From 'B' On Pressure From Wage Inflation; Outlook Negative

ASP NAPA Intermediate Holdings LLC (NAPA), a provider of anesthesia services, is experiencing substantial margin pressure from wage inflation that exceeds the pace of reimbursement increases. For 2023, we expect EBITDA margins of 3%-4%, a cash flow deficit, and S&P Global Ratings-adjusted debt leverage of 9x-10x. Although we expect the company's performance to improve as it continues to make progress negotiating for hospital-provided subsidies and terminating unprofitable contracts it has with hospitals, it's uncertain how quickly and how significantly its margins and free cash flow will improve. Although a few of NAPA's hospital customers have recently in-sourced their anesthesia function by hiring NAPA's staff in exchange for a sizable fee, our base case does not assume that this type of

...- ASP NAPA Intermediate Holdings LLC (NAPA), a provider of anesthesia services, is experiencing substantial margin pressure from wage inflation that exceeds the pace of reimbursement increases. For 2023, we expect EBITDA margins of 3%-4%, a cash flow deficit, and S&P Global Ratings-adjusted debt leverage of 9x-10x. - Although we expect the company's performance to improve as it continues to make progress negotiating for hospital-provided subsidies and terminating unprofitable contracts it has with hospitals, it's uncertain how quickly and how significantly its margins and free cash flow will improve. - Although a few of NAPA's hospital customers have recently in-sourced their anesthesia function by hiring NAPA's staff in exchange for a sizable fee, our base case does not assume that this type of opportunity will reoccur. - Therefore, we lowered the issuer credit rating on NAPA to 'B-' from 'B'. At the same time, we lowered our issue-level rating on the first-lien debt to 'B-' from 'B'....

Research Update