Rating Action: Moody's confirms Team Health's Caa1 CFR, outlook stableGlobal Credit Research - 01 Mar 2022New York, March 01, 2022 -- Moody's Investors Service ("Moody's") confirmed Team Health Holdings, Inc.'s ("Team Health") Caa1 Corporate Family rating (CFR), Caa1-PD Probability of Default Rating (PDR), B3 rating of senior secured credit facilities consisting of a term loan and bank revolving credit facility and the Caa3 rating of unsecured notes. The outlook on all ratings is stable.This concludes the rating review that was initiated on February 8, 2022.In February 2022, the company amended a portion ($1,441 million) of its outstanding $2,619 million senior secured Term Loan B (~55% of the total public outstanding amount) and 100% of a $144 million private Term loan B. As a part of this amendment, the company also paid down approximately $172 million principal amount to lenders who agreed to the amendment.The confirmation of Team Health's ratings reflects significant refinancing risk even after the recent amendment. Under terms of the agreement, the notional maturity date on the $1,441 million amended portion of the term loan was extended from February 6, 2024 to 2027. However, under certain conditions the maturity of the amended portion of the term loan could spring forward to November 2024, which is ahead of the February 2025 maturity of the unsecured notes. The maturity date on that portion of the term loan that was not amended remains at February 2024. In addition, the company's bank revolving credit facility expires in November of 2023. It is unlikely that banks will extend the revolver's expiration past the 2024 term loan maturities, adding to the company's high refinancing requirements. Given all of these factors, the risk of the company's entire debt capital structure coming due starting in early 2024 through early 2025 remains a material credit risk, and will likely require a comprehensive refinancing of the entire capital structure over the next 24 months.Moody's positively views the company's good liquidity and an improvement of the company's financial leverage due to the partial debt paydown. However, the company's pro forma financial leverage remains very high at 7.4 times debt/EBITDA, especially in the context of impending refinancing risk.Ratings confirmed:Issuer: Team Health Holdings, Inc.... Corporate Family Rating at Caa1... Probability of Default Rating at Caa1-PD...Senior secured revolving credit facility expiring 2023 at B3 (LGD3)...Senior Secured Term Loan due 2024 at B3 (LGD3)...Amended senior secured term loan due 2027 at B3 (LGD3)...Senior Unsecured Notes due 2025 at Caa3 (LGD6)Outlook Actions:Issuer: Team Health Holdings, Inc.... Outlook changed to stable from rating under reviewRATING RATIONALETeam Health's Caa1 CFR reflects the company's very high financial leverage, challenging operating environment, and continuing high refinancing risk. The operating challenges include less than full recovery of business volumes following the COVID-19 pandemic, an ongoing dispute with some commercial insurers and the company's exposure to an unfavorable shift in payor mix. Moody's estimates that the company's leverage will remain in the low-to-mid 7 times range in the next 12-18 months.Team Health's credit profile is supported by its large scale and strong competitive position in the highly fragmented physician staffing industry.Team Health's liquidity is good. Moody's expects that the company will generate $100- $120 million in free cash flow in the next 12 months. At the end of fiscal 2021, Team Health had about $512 million in cash (the company will use $172 million for debt pay down in the first quarter of 2022) and approximately $287 million in availability under its $300 million bank revolving credit facility.The company's senior secured credit facilities (comprised of the revolver and term loan) are rated B3. The B3 instrument rating reflects the senior secured credit facilities' priority claim on assets and benefits from the cushion provided by the unsecured notes which are rated Caa3. The unsecured notes' Caa3 rating reflects their junior position in the capital structure and the fact that they would absorb losses ahead of the senior secured credit facilities.Social and governance considerations are material to the rating, given the substantial implications for public health and safety. Team Health was materially impacted by the coronavirus outbreak, but the company's business volumes have largely recovered. As a provider of emergency medicine physician staffing, Team Health faces high social risk. The No Surprises Act, which became effective in January 2022 takes the patient out of the provider/payor dispute. The impact on Team Health's revenue will depend on the percentage of out-of-network patients, specific billing and collections practices, as well as arbitration process. In recent years, the company has tried to resolve its disputes with commercial insurers through negotiations. However, when negotiations did not work, the company has pursued an active litigation strategy in parallel with negotiations. Moody's expects the company's financial policies to remain aggressive reflecting its ownership by a private equity investor (Blackstone Inc.).FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be downgraded if the company's liquidity deteriorates, free cash flow becomes negative, or if the company fails to address the refinancing risks well in advance of scheduled maturities. Ratings could also be downgraded if for whatever reason its probability of default increases.The ratings could be upgraded if Team Health addresses the refinancing risk associated with substantial amount of debt which could mature in 2024 and 2025. Additionally, improved clarity and positive outcomes in relation to contract negotiations with UnitedHealth could also support a rating upgrade.Team Health is a provider of physician staffing and administrative services to hospitals and other healthcare providers in the U.S. The company is affiliated with more than 15,000 healthcare professionals who provide emergency medicine, hospital medicine, anesthesia, urgent care, pediatric staffing and management services. The company also provides a full range of healthcare management services to military treatment facilities. Net revenues are approximately $4.6 billion.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Kailash Chhaya, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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