Evergreen Physician Group (EVPG) — First-Lien Term Loan
Executive Summary
Demo purchase of $100M face of First-Lien Term Loan at 93.0 (cash investment $93.5M): current yield 9.2%, yield to maturity 11.5%. Recommendation: HOLD. Credit score 49/100 (Elevated risk). Base-case IRR 11.0%, downside 10.3%, severe 2.4%; probability-weighted IRR 9.5% vs a 12% hurdle; weighted P(default) 45%; severe-case valuation recovery 65%. HOLD (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).
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?
Company Overview
Roll-up of specialty physician practices, margins squeezed by payer rate changes and labor costs. HQ Nashville, TN; Healthcare / Physician Practice Management. FY2025A revenue $1.9B, EBITDA $247M (13.0% margin); total debt $1.6B, cash $80M. DEMO DATA
Industry / Market
Physician roll-ups face rising labor costs and payer scrutiny; credit depends on contract quality and integration cost control.
Historical Financial Performance
| $M | FY2022A | FY2023A | FY2024A | FY2025A |
|---|---|---|---|---|
| Revenue | $1.6B | $1.7B | $1.8B | $1.9B |
| % growth | 9.7% | 5.9% | 5.6% | |
| Direct costs / COGS | $906.8M | $1.0B | $1.1B | $1.1B |
| Gross profit (NOI for real estate) | $643.3M | $697.0M | $729.0M | $760.0M |
| % margin | 41.5% | 41.0% | 40.5% | 40.0% |
| Operating expenses (cash, adjusted) | $418.5M | $459.0M | $486.0M | $513.0M |
| EBITDA (company-adjusted basis) | $224.7M | $238.0M | $243.0M | $247.0M |
| % margin | 14.5% | 14.0% | 13.5% | 13.0% |
| D&A | $46.5M | $51.0M | $54.0M | $57.0M |
| Share-based compensation | $0.0M | $0.0M | $0.0M | $0.0M |
| EBIT | $178.2M | $187.0M | $189.0M | $190.0M |
| Interest expense | $114.5M | $121.3M | $128.0M | $134.8M |
| EBT | $63.7M | $65.7M | $61.0M | $55.2M |
| Taxes | $15.9M | $16.4M | $15.2M | $13.8M |
| Net income (model basis) | $47.8M | $49.3M | $45.7M | $41.4M |
| Capex | $38.8M | $42.5M | $45.0M | $47.5M |
| Working capital & other cash items | $10.3M | $21.0M | $14.0M | $14.0M |
| Free cash flow | $45.2M | $36.8M | $40.7M | $36.9M |
Capital Structure
| Tranche | Rank | Secured | Face value | Rate | Maturity | Mark / price |
|---|---|---|---|---|---|---|
| Revolver | 1 | Yes | $120.0M | S+355bp | 2028-01-31 | — |
| First-Lien Term Loan | 1 | Yes | $900.0M | S+435bp | 2029-03-31 | 93.0 |
| Senior Unsecured Notes 8.00% | 3 | No | $600.0M | 8.00% | 2031-06-15 | 82.0 |
Total debt $1.6B (6.6x EBITDA); net debt $1.5B; liquidity $160M; loan-to-value through the target tranche 61%.
Credit Analysis
Net leverage 6.2x, EBITDA / interest 1.83x, FCF / debt 2.3%, DSCR 1.3x, liquidity ratio 1.1x. Score components: Leverage 2/15, Coverage 3/15, Liquidity 4/10, Free cash flow 3/10, Maturity risk 9/10, Margin stability 10/10, Revenue stability 8/8, Asset coverage 2/12, Industry risk 8/10. Score change vs FY2024A (same capital structure): 50 → 49 (Net leverage fell from 6.3x to 6.2x (+0.3 pts, positive); Liquidity ratio fell from 1.2x to 1.1x (-0.4 pts, negative)).
Debt Maturity Profile
| Period | Debt due | % of debt | Projected liquidity (Base) | Refinancing requirement |
|---|---|---|---|---|
| FY2028E | $120M | 7% | $330M | — |
| FY2029E | $900M | 56% | $412M | $488M |
| 2031 (beyond horizon) | $600M | 37% | $300M | $300M |
Risk flag: $900M maturity in FY2029E; only $412M projected liquidity; $488M refinancing requirement.
| Tranche | Matures | Balance at maturity | Cash on hand | Net lev. (test ≤) | Pro-forma coverage (test ≥) | Refi rate | Interest burden after | Result | Resolution |
|---|---|---|---|---|---|---|---|---|---|
| Revolver | FY2028E | $0.0M | $52M | 4.9x (8.5x) | 2.47x (1.20x) | 9.5% | $0.0M | REFINANCING PASS | Repaid from cash |
| First-Lien Term Loan | FY2029E | $864.0M | $121M | 4.3x (8.5x) | 2.40x (1.20x) | 9.5% | $62.8M | REFINANCING PASS | Partly repaid from cash; remainder refinanced |
Base Case
Revenue CAGR 5.0%; FY2030E EBITDA $335M (13.8% margin); trough EBITDA $259M; peak net leverage 5.8x; minimum EBITDA / interest 1.92x; cumulative FCF $388M. No payment default modelled. IRR 11.0%, MOIC 1.34x.
Downside Case
Revenue CAGR -0.2%; FY2030E EBITDA $218M (11.6% margin); trough EBITDA $186M; peak net leverage 8.1x; minimum EBITDA / interest 1.35x; cumulative FCF $76M. Payment default modelled in FY2028E; target-tranche recovery 100%. IRR 10.3%, MOIC 1.41x.
Severe Downside
Revenue CAGR -4.4%; FY2030E EBITDA $144M (9.5% margin); trough EBITDA $111M; peak net leverage 14.8x; minimum EBITDA / interest 0.70x; cumulative FCF ($300M). Payment default modelled in FY2028E; target-tranche recovery 65%. IRR 2.4%, MOIC 1.08x.
Covenant Analysis
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 5.76x | 5.17x | 4.59x | 4.01x | 3.44x |
| Covenant | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x |
| Headroom | 1.24x (18%) | 1.83x (26%) | 2.41x (34%) | 2.99x (43%) | 3.56x (51%) |
| Status | PASS | PASS | PASS | PASS | PASS |
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 7.47x | 8.12x | 7.63x | 7.17x | 6.70x |
| Covenant | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x | ≤ 7.00x |
| Headroom | −0.47x (-7%) | −1.12x (-16%) | −0.63x (-9%) | −0.17x (-2%) | 0.30x (4%) |
| Status | BREACH | BREACH | BREACH | BREACH | PASS |
Recovery Analysis
If the company defaults, recovery value is $716M (going concern) in the severe case → 65% recovery (35% LGD) on the target tranche; downside 100%. Recovery value = MAX(going concern $716M, liquidation $273M) + cash, less administrative costs; severe case struck at FY2028E.
| Claim (by seniority) | Rank | Claim | Recovery | Recovery % | Loss | Loss % |
|---|---|---|---|---|---|---|
| Recovery value | $715.6M | |||||
| Less: administrative / DIP costs | ($28.6M) | |||||
| Revolver | 1 | $155.1M | $101.3M | 65.3% | $53.9M | 34.7% |
| First-Lien Term Loan | 1 | $897.2M | $585.7M | 65.3% | $311.6M | 34.7% |
| Senior Unsecured Notes 8.00% | 3 | $612.0M | $0.0M | 0.0% | $612.0M | 100.0% |
| Total claims | $1.7B | $686.9M | $977.4M | |||
| Equity (residual) | $0.0M | Wiped out | ||||
Investment Returns
| Base Case | Downside | Severe Downside | |
|---|---|---|---|
| Face value / purchase price / cash investment | $100M / 93.0 / $93.5M UNDERWRITING ASSUMPTION | ||
| Cash interest + exit/recovery proceeds | $25.0M + $100.0M | $29.5M + $102.4M | $34.0M + $67.1M |
| Capital gain / (loss) vs purchase price | $7.0M | $9.4M | ($25.9M) |
| MOIC | 1.34x | 1.41x | 1.08x |
| IRR (hurdle 12%) | 11.0% | 10.3% | 2.4% |
Key Risks
- 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
- 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
Due Diligence Items
| Item | Status | Priority | Open question |
|---|---|---|---|
| Working capital and capex needs | Issue Identified | Medium | Are capex and working capital run-rates sustainable? |
| Revenue and customer concentration | Not Started | Medium | Top-10 customer share and contract terms? |
| Supplier concentration | Not Started | Low | Any single-source dependencies? |
| Competitive position and management | Not Started | Medium | Share trend and management track record? |
| Debt documentation review | In Progress | High | Priming / drop-down protections and baskets? |
| Covenant package and definitions | In Progress | High | Covenant EBITDA definition and headroom? |
| Maturity profile and refinancing plan | In Progress | High | Is the refinancing plan credible at current leverage? |
| Collateral and lien perfection | Issue Identified | Medium | What assets secure the instrument? |
| Litigation and contingent liabilities | Not Started | Medium | Any material claims ahead of creditors? |
| Guarantees and structural subordination | Not Started | Medium | Which entities guarantee; any non-guarantor leakage? |
| Industry conditions and pricing | Not Started | Medium | Where are we in the industry cycle? |
| Macro and rate sensitivity | In Progress | Low | How does the credit behave at +300 bps? |
Recommendation
HOLD. HOLD (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 |
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.
Sources (3)
| Source | Document | Data type | Period | Accession | Doc date | Retrieved | Class |
|---|---|---|---|---|---|---|---|
| CreditIQ demo dataset | Evergreen Physician Group — illustrative financial statements FY2022–FY2025 | Income statement / cash flow | FY2022–FY2025 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Evergreen Physician Group — illustrative capital structure & covenants | Debt schedule | As of 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Illustrative indicative bid marks (% of par) | Market price | 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
Generated entirely from the structured model (inputs → analysis → memo): every figure reconciles to the Excel workbook (see Settings → Reconciliation). Hypothetical terms are underwriting assumptions. Not investment advice.