Investing.com -- S&P Global Ratings has upgraded its issuer credit rating for Waystar Technologies Inc. to ’BB-’ from ’B+’ due to the company’s stronger market position and decreasing leverage. The rating agency also raised the issue-level to ’BB-’ from ’B+’, with recovery ratings remaining the same. The outlook for Waystar Technologies is stable, reflecting expectations that the company will continue to grow organically and through acquisitions, while keeping its leverage well below 5x.
The credit rating upgrade comes as EQT (ST: EQTAB ) Partners Inc., Bain Capital L.P., and the Canada Pension Plan Investment Board (CPIB) agreed to sell 14.4 million shares in Waystar through a public offering, reducing their combined ownership from 52% to 43.9%. This move indicates a potential shift in control of the company in the coming years.
The ’BB-’ rating reflects Waystar’s improved position in a fragmented market, as demonstrated by its 2024 results and anticipated low-double digit revenue growth. Over the past few years, Waystar has seen above-average growth compared to its peer group in the revenue cycle management (RCM) sector, due to solid pricing dynamics, contract wins, and cross-selling. The company’s strong market position is attributed to the quality of its products, high visibility due to the nature of its contracts, a diversified customer base, and customer retention.
However, the rating is constrained by Waystar’s appetite for mergers and acquisitions (M&A) in a highly fragmented market. S&P Global Ratings expects the company’s debt to EBITDA ratio to be about 3.2x in 2025, down from 3.6x in 2024, reflecting an expanding EBITDA base and margins remaining around 38%. Despite expectations that leverage will decline, Waystar has not yet established a track record of lower leverage and has not publicly committed to a leverage target.
Waystar is expected to generate cash flow greater than $200 million in 2025, an improvement stemming from EBITDA growth, reduced one-time costs related to refinancing and its initial public offering (IPO), and lower interest. The company’s active role in the M&A market and the fragmented nature of the health care IT space could lead to acquisitions that quickly raise leverage above 4x.
The company’s sponsors, EQT, CPPIB, and Bain, are expected to relinquish control over the coming years. Their recent public offering of common stock decreased their ownership share and resulted in EQT losing a seat on the board. When the company is no longer controlled by financial sponsors, cash will be netted against debt, further decreasing leverage expectations.
Despite facing competition from larger companies like Epic Systems Corp., Optum Inc., and Oracle Corp (NYSE: ORCL )., Waystar is well-positioned to benefit from industry tailwinds. The ongoing trend of health care IT investments being a strategic priority among U.S. health care providers is seen as generally positive for Waystar.
However, the capital required for Waystar to compete could increase over the long run as companies assemble more complete service offerings and invest significantly in automation and AI. The stable outlook reflects expectations that the company will continue to grow organically and through acquisitions, while maintaining its leverage well below 5x.
The rating could be lowered if the company’s leverage increased above 5x due to aggressive acquisitions or share buybacks or if it fell significantly short of EBITDA growth expectations, indicating a declining competitive position. An upgrade is viewed as unlikely due to the company’s relatively small scale, limited track record, and financial-sponsor ownership.
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