NEW YORK – Fitch Ratings said it has affirmed the AA-minus rating and revised the rating outlook to stable from positive on approximately $757 million of North Carolina Medical Care Commission Health Care revenue bonds issued on behalf of Novant Health following Novant's announcement to purchase MQ Associates, Inc. (MedQuest), a multi-state diagnostic imaging services provider.
MedQuest currently provides imaging services at 91 fixed sites throughout the country with a focus in the Southeast and Southwest. Under the terms of the definitive agreement signed between Novant and MedQuest on Aug. 10, Novant will pay $45 million to equity holders in cash at closing and assume approximately $358 million in MedQuest debt outstanding. In addition, Novant will give consideration for a $35 million payment to equity holders if certain EBITDA targets are met in 2008. The purchase of the imaging services provider is expected to close on or around Oct. 1, 2007.
The acquisition presents numerous challenges offset by growth opportunities. Novant's liquidity, leverage, and operating profitability will be negatively affected by the acquisition. In addition, the capital-intensive nature of imaging services and labor shortages present additional challenges.
Finally, Fitch is concerned that this could dilute management's attention toward its significant capital and strategic growth plans in its two markets. However, these concerns are offset by the higher growth prospects that should occur with the acquisition, the strong complement MedQuest provides to Novant's growing ambulatory presence in its two core markets, and the elimination of a competitive element.
Additionally, Novant management has a strong track record of integrating facilities and businesses into the consolidated organization. Fitch believes that Novant will be successful in achieving sizeable costs savings within the first year of assuming control of MedQuest, which will positively affect operating profitability. Fitch expects to review the progress of the integration regularly over the next three years.
Novant's rating is supported by its strong financial profile, solid market position and extensive physician network. Primary credit concerns include Novant's sizeable capital plans and expansion projects, the presence of a strong competitor in the Mecklenburg County area, and the profit concentration of Forsyth Medical Center (Winston Salem).
