OREANDA-NEWS. S&P Global Ratings today affirmed its 'B' corporate credit rating on Vizient Inc. The rating outlook is stable.

At the same time, we raised our rating on the company's first-lien credit facilities to 'B+' from 'B' and revised the recovery rating on this debt to '2' from '3'. The '2' recovery rating reflects our expectation for substantial (70%-90%, at the lower end of the range) recovery in the event of a payment default.

The sale of Vizient's subsidiary, National IPA, representing less than 5% of our 2017 projected revenues, is consistent with its commitment to the health care marketplace. Given its small size and nonstrategic focus, we have not revised our assessment of the company's business profile, despite the modest decline in margin, because National IPA generated strong margins. Leverage will be little changed.

"The ratings reflect Vizient's high leverage as a result of the recent acquisition of MedAssets' Spend and Clinical Management (SCM) segment as well as its analytics and consulting arm, Sg2," said S&P Global Ratings credit analyst David Peknay. It also reflects the company's specialized focus as a GPO, or a negotiator of supply contracts, and provider of analytical services to hospitals and other health care providers. These vulnerabilities are partially offset by our belief that Vizient has become the clear market-leading GPO after its recent acquisition of MedAssets' SCM segment.

We view the health care GPO industry as relatively stable because of its relatively long (three to five year) contract terms, high recurring revenues, and fairly high level of consolidation. Although hospitals do purchase supplies on their own without GPOs, and also use regional GPOs, we estimate the top four players will constitute 85% of the national GPO market after the SCM acquisition.

The stable rating outlook reflects our expectation that the company's revenue will grow organically--excluding the impact of the divestiture--at a mid-single-digit rate. It also reflects our view that despite cost pressures on providers, the company's EBITDA margin will expand this year and next year, primarily because of the MedAssets acquisition, including cost synergies.

We could lower the rating if the company's revenue declines at a low-single-digit rate and margins are 200 basis points lower than our expectations. In this scenario, we project that cash flow would be minimal. We believe this could occur if the company experiences pricing pressure from its clients or faces contract losses.

We could raise the rating if leverage declines below 5x. We view this scenario as unlikely over the next year given integration risks related to the acquisition, high leverage, and our expectation of modest cash flow generation this year.