Evergreen Physician Group · EVPG
DEMO DATAUNDERWRITING ASSUMPTIONHOLDEvergreen Physician Group — First-Lien Term Loan
Proposed investment
Returns
| Base IRR (p=55%) | 11.0% | FAIL |
| Downside IRR (p=30%) | 10.3% | PASS |
| Severe downside IRR (p=15%) | 2.4% | |
| Probability-weighted IRR (of expected cash flows) | 9.5% | FAIL |
| MOIC base / downside / severe | 1.34x / 1.41x / 1.08x | |
| Required IRR (hurdle) | 12% | |
Credit
| Net leverage (FY2025A) | 6.2x | max 6.0x |
| Interest coverage (EBITDA / interest) | 1.83x | |
| Liquidity | $160M | |
| Covenant headroom (base, minimum) | 18% | min 15% |
| Credit score | 49 / 100 | Elevated |
| Next maturity | 2028 | |
Downside
| Recovery (downside / severe) | 100% / 65% |
| Loss given default (severe) | 35% |
| Default period (downside / severe) | FY2028E / FY2028E |
| Probability of default (weighted) | 45% |
| Expected loss | 5.2% |
| Recovery needed for MOIC 1.0x | 64% of face |
Key risks (largest first)
- Thin interest coverage: EBITDA / interest 1.83x at FY2025A (EBITDA could fall 45% before coverage hits 1.0x).
- Refinancing: $900M maturity in FY2029E; only $412M projected liquidity; $488M refinancing requirement.
- High leverage: net debt / EBITDA 6.2x (maximum in policy 6.0x).
- Severe case produces a payment default in FY2028E.
- Severe-case valuation recovery of 65% is below the 93.0 purchase price: a 35% loss given default.
Key protections (strongest first)
- First-priority secured position on substantially all assets; 0% of recovery value is senior to us and 61% through our tranche.
- Base-case refinancing tests pass for all 2 maturing tranche(s); 1 are repaid from cash.
- Discount on first-lien to par
- Margin recovery as integration completes
Catalysts
- Payer contract renewals
- Revolver maturity Jan 2028
Diligence — 3 unresolved high-priority item(s)
Tracker →- Debt documentation review — In ProgressPriming / drop-down protections and baskets?
- Covenant package and definitions — In ProgressCovenant EBITDA definition and headroom?
- Maturity profile and refinancing plan — In ProgressIs the refinancing plan credible at current leverage?
Investment thesis
Margins have declined 150bps in two years and coverage is 1.8x, but the platform is growing and the first-lien loan is trading at a discount. We need to understand organic vs acquired growth and payer-contract exposure before underwriting.
The question: Does a 11.5% yield on a rank-1 secured claim compensate for 45% probability-weighted default risk and 35% severe-case loss?
Recommendation rationale — evidence from the model
HOLDHOLD (do not size yet): Base-case IRR clears hurdle (11.0% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (9.5% vs ≥ 12.0%); Net leverage within maximum (6.2x vs ≤ 6.0x).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✗ | Base-case IRR clears hurdle | 11.0% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 9.5% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 10.3% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 100.0% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✓ | Entry yield meets minimum | 11.5% | ≥ 9.0% | secondary |
| ✗ | Net leverage within maximum | 6.2x | ≤ 6.0x | secondary |
| ✓ | Covenant headroom (base case, minimum) | 17.7% | ≥ 15.0% | secondary |
| ✗ | Principal protected in severe case (recovery ≥ price) | 65 vs 93.0 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 3 open | 0 open | secondary |
Rule: PROCEED if all five core tests pass and ≤ 2 secondary tests fail; PASS if the base case and the downside both fail, or ≥ 3 core tests fail; otherwise HOLD. Thresholds (hurdle 12%, min downside IRR 0%, min yield 9.0%, max leverage 6.0x, min recovery 60%, min covenant headroom 15%) are configurable per case. The Excel Investment Summary tab implements the same rule by formula.
What would change my mind?
- EBITDA declines more than 45% from FY2025A (coverage < 1.0x) — or more than 11% (first covenant breaks).
- The entry price is above 90.8: the base case no longer earns the 12% hurdle (assumed price 93.0).
- Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 8.5x EBITDA (the severe case assumes 6.0x); the question is how much cushion we want.
- Collateral / enterprise value falls more than 37% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 2.47x vs the 1.20x test, at an assumed 9.5% refinancing rate — a higher spread or lower EBITDA flips the test.