Research Update: Heartland Dental LLC Outlook Revised To Negative On Weakened Leverage From Aggressive Expansion; 'B-' Rating Affirmed

Effingham, Ill.-based dental support services provider Heartland Dental LLC's accelerated pace of office expansion, along with increased one-time investments in 2018, has resulted in a decline of adjusted EBITDA margin of more than 200 basis points (bps) and a significant increase in 2018 leverage to 13.8x from 9x in 2017. We expect EBITDA margins to further erode to about 8% in 2019, as the addition of lower margin offices will likely offset the benefits from one-time investments. S&P Global Ratings revised its rating outlook on Heartland Dental to negative from stable and affirmed our 'B-' issuer credit rating. We also affirmed the 'B-' issue level rating, with a recovery rating of '3', on the first-lien debt and the 'CCC' issue

...- Effingham, Ill.-based dental support services provider Heartland Dental LLC's accelerated pace of office expansion, along with increased one-time investments in 2018, has resulted in a decline of adjusted EBITDA margin of more than 200 basis points (bps) and a significant increase in 2018 leverage to 13.8x from 9x in 2017. - We expect EBITDA margins to further erode to about 8% in 2019, as the addition of lower margin offices will likely offset the benefits from one-time investments. - S&P Global Ratings revised its rating outlook on Heartland Dental to negative from stable and affirmed our 'B-' issuer credit rating. - We also affirmed the 'B-' issue level rating, with a recovery rating of '3', on the first-lien debt and the '###' issue rating, with a recovery rating of '6', on the senior unsecured notes. - The negative outlook reflects our view that Heartland's aggressive growth strategy heightens execution risk and will lead to higher leverage over the longer term....

Research Update