The Yardley, Pa.-based company has three divisions: pharmaceutical marketing, health management and health information. Vestar bought the company in 2006, and has invested a total of about $250 million of equity into the company, Norm Alpert, a managing director with the New York-based firm, told Buyouts. The firm has recently replaced the company’s CEO and completed the sale of a subsidiary which will help it pay down debt.
“We’re on top of it,” said Alpert, who said Vestar, founded in 1988, has an “excellent” reputation with lenders. “We still have a lot of work to do, and we have very good plans and people in place such that we’ll be in excellent financial position going forward.”
News of the company’s struggles emerged Aug. 17, when Moody’s Investors Service downgraded its credit ratings after it violated a maximum debt covenant. The company has “weaker than expected operating performance, high leverage, and a lower than anticipated cash balance,” analysts from the ratings agency wrote in a press release.
The downgrade stems to a certain extent from bad timing, Alpert said. In early August, the company closed its $146 million sale of Vetstreet, a subsidiary that provides a communication platform connecting clients and veterinary practices. Had the sale closed by June 30, Alpert said, the company would have been in compliance with its debt limit.
MediMedia has about $360 million of outstanding debt, or about 6x EBITDA of about $60 million (Moody’s puts the debt at 7.1x as of March 31), Alpert said. The sale of Vetstreet allows MediMedia to pay down about a third, or $120 million, of its debt. “This was a massive deleveraging event,” said Alpert, who expressed confidence that the company would be able to agree on an amendment with its lenders.
Alpert said the company’s challenges stem largely from integrating two acquisitions, which has put pressure on earnings as the company tries to ferret out redundancies. Moody’s analysts echoed this sentiment, writing that the company’s “history of acquisitions and sales appears to have caused integration problems for its pharmaceutical marketing and health management divisions that drove weak performance.”
Moody’s downgraded MediMedia’s corporate family rating to ‘Caa’ from B3, and its senior secured bank credit facility to ‘B2’ from ‘B1.’ Moody’s also cited the company’s dependence on pharmaceutical spending, which “exposes it to the industry’s shifting spending patterns as patents expire on a large number of high profile drugs at a time when it will be trying to rebuild its reputation in the industry.”
On the positive side for MediMedia, Moody’s maintained its ‘Caa2’ rating for its senior subordinated notes and its outlook is stable, thanks to the Vetstreet divestiture. The sale and the change in CEO is “a step toward rebuilding confidence with investors and customers, although it is likely to take several quarters of strong execution,” analysts at Moody’s wrote in their release.