Fitch upgrades Waystar’s long-term issuer default rating to ’BB’

Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) of Waystar Holding Corp. and Waystar Technologies, Inc. to ’BB’ from ’BB-’, as announced on Wednesday, May 28, 2025. The first-lien term loan of the company, collectively known as Waystar, has been affirmed at ’BB+’ with a Recovery Rating of ’RR2’. The Rating Outlook remains stable.

The upgrade reflects Waystar’s reduced leverage expectations, with its EBITDA leverage declining to 3.4x in fiscal 2024, falling below Fitch’s prior positive sensitivity threshold of 3.5x. The ratings agency anticipates that the leverage will stay in the low 3x range over the rating horizon.

Waystar’s strong operating profile, characterized by a high portion of recurring and reoccurring revenues, solid retention rates, and low debt levels, also contributed to the upgrade. The company’s free cash flow (FCF) generation is expected to improve to the high teens to low 20s.

Waystar’s EBITDA leverage has decreased to 3.4x as of fiscal 2024, exceeding Fitch’s prior expectations, due to IPO proceeds and organic growth. The company’s leverage in the last twelve months of the first quarter of 2025 is at 3.2x. Furthermore, the ratio of CFO minus capex to debt has improved to 10.2% as of fiscal 2024.

Fitch predicts that Waystar will continue to benefit from ongoing healthcare spending, driven by factors such as the aging population, improved utilization, and rising drug costs. However, the recently proposed Trump tax bill, aiming to cut spending on Medicaid-targeted programs, could potentially reduce patient volumes at healthcare facilities, impacting overall healthcare expenditure and limiting Waystar’s revenue growth.

Despite potential challenges, Fitch expects a limited impact on Waystar’s operating performance as approximately 50% of its revenues are subscription-based. Waystar’s services are considered essential to healthcare providers due to increasing regulatory requirements, the complexity of claims processing, and ongoing pressures on provider profitability.

Fitch forecasts Waystar’s EBITDA margins improving to the low 40s over the rating horizon. The EBITDA margin is at the high end of the 28%-47% range of broader Fitch-rated healthcare IT peers. Strong margins and low capital intensity have contributed to robust FCF margins with margin improving to 13.4% as of fiscal 2024.

Approximately 99% of Waystar’s revenue is highly recurring, driven by subscriptions and consistent patient volumes. Waystar’s gross retention rate, which exceeds 95%, and net retention rate, above 110%, reflect the critical role that Waystar’s solutions play in healthcare providers’ revenue cycle operations.

Through successful integration of previous acquisitions, Waystar has emerged as a leading end-to-end revenue cycle management (RCM) provider, equipped with robust processing capabilities for both commercial and government payers. It also offers a powerful patient engagement and payments platform. Waystar’s platform handles more than 6 billion insurance transactions and manages over $1.8 trillion in gross claims each year, effectively serving approximately 50% of the U.S. population.

Compared to Gainwell Acquisition Corp., a Fitch-rated HCIT provider specializing in Medicaid Management Information Systems (MMIS) for over 30 U.S. states, Waystar exhibits a more conservative financial profile. Waystar’s leverage is notably low compared to the 8x median for other Fitch-rated HCIT peers.

When compared against broader Fitch-rated software peers such as RingCentral (NYSE:RNG) Inc. and MeridianLink, Inc., Waystar continues to outperform in terms of profitability. Its EBITDA margins, expected in the low 40% range, exceed those of MeridianLink and RingCentral.

Fitch’s expectations of reduced leverage have led to an upgrade of Waystar’s IDR by one notch to ’BB’ from ’BB-’ with a Stable Outlook. Waystar’s strong client retention rates, high switching costs, robust sales efforts, and a proven track record of market share gains have contributed to its consistent client growth potential.

The ’BB+’/’RR2’ rating for the term loan reflects the current debt structure that consists of a $400 million senior secured revolver (undrawn), a $1.17 billion senior secured term loan, and Fitch’s view on superior recovery in a default scenario.

Fitch’s key assumptions include maintaining organic revenue growth in the high single digits, EBITDA margins estimated in the low 40s, and capex as a percentage of revenue in the 2.5%-3.0% range. Fitch assumes Waystar will put excess cash flow, coupled with incremental debt, toward acquisitions/growth initiatives and possible share repurchases over the rating horizon.

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