Franklin, Tennessee-based behavioral health services provider SBHC Holdings LLC (doing business as Summit Behavioral Health) continues to work through a challenging referral environment, which has impaired its margins. Department of Veteran Affairs (VA) referral losses and expenses related to de novo expansion, productivity initiatives, and litigation have weakened profitability and cash flow more than we originally anticipated. We now expect S&P Global Ratings-adjusted leverage between 9x-10x and a free operating cash flow (FOCF) deficit between $30 million-$40 million in 2025. We also expect Summit will continue to rely heavily on its revolving credit facility that matures in November 2026. Therefore, we revised our outlook on Summit to negative from stable and affirmed our 'B-' issuer credit rating on the company.
