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Investing.com -- Moody’s Ratings has affirmed HealthEquity, Inc.’s corporate family rating at Ba3 while changing the outlook from stable to positive, citing improved credit metrics following the successful integration of the BenefitWallet acquisition.
The rating agency maintained the company’s probability of default rating at Ba3-PD and affirmed the $600 million senior unsecured notes rating at B1. HealthEquity’s speculative grade liquidity rating remains unchanged at SGL-1.
The positive outlook reflects HealthEquity’s increased scale, improved free cash flow generation, and reduced financial leverage. The company’s debt-to-EBITDA ratio (less capitalized software costs) stands at 3.4x for the 12-month period ended April 30, 2025.
As the largest non-bank custodian of Health Savings Accounts in the US, HealthEquity has strengthened its competitive position following the BenefitWallet acquisition. The company generated approximately $300 million in free cash flow (26% of debt) for the period ended April 30, 2025, with strong EBITDA margins in the high 20s to low 30s percent range.
Moody’s noted that HealthEquity’s modest revenue scale of approximately $1.2 billion remains below other similarly rated service providers. The company’s financial policies include using debt to fund acquisitions as a growth strategy, which impacts its rating.
The rating agency expects mid to high-single digit organic revenue growth and approximately $300 million in free cash flow going forward. HealthEquity had about $288 million in cash as of April 30, 2025, with an expected $550 million remaining available under its $1 billion revolving credit facility.
Moody’s indicated that ratings could be upgraded if HealthEquity further expands its revenue scale while maintaining EBITDA margins above 30% and debt-to-EBITDA below 4.0x. Conversely, ratings could be downgraded if revenue growth slows, the company loses significant market share, or if debt-to-EBITDA exceeds 5.0x.
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