HealthEquity Credit Rating Upgraded by Moody's on Strong Cash Flow and Lower Debt

Moody's Ratings has upgraded HealthEquity, Inc.'s (NASDAQ:HQY) corporate family rating to Ba2 from Ba3, attributing the change to the company's sustained positive operating performance and strong free cash flow generation. The ratings agency also shifted HealthEquity's outlook to stable from positive.

Key Drivers for the Upgrade

The upgrade reflects the successful integration of the BenefitWallet acquisition, which Moody's noted has increased HealthEquity's scale and improved its ability to generate free cash flow. This has allowed the health savings account (HSA) administrator to reduce its debt more rapidly than initially anticipated.

Key financial metrics supporting the new rating include:

• Financial Leverage: Debt-to-EBITDA (less capitalized software costs) improved to 2.1x for the twelve months ending April 30, 2026, a full turn better than the prior fiscal year.
• Interest Coverage: The company reported strong interest coverage, with a ratio of EBITDA less capital expenditures to interest expense of 9.0x.
• Cash Flow: HealthEquity generated over $400 million of free cash flow in the last twelve months, equivalent to approximately 40% of its total debt.

Rating Constraints and Outlook

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Despite the upgrade, Moody's noted that certain factors constrain the rating. The company's revenue scale, which exceeded $1.3 billion for the last twelve months, remains below that of many other Ba2-rated business services issuers. The rating also incorporates the risk that a weaker labor market or a lower interest rate environment could pressure profitability and moderate organic growth.

Moody's also pointed to the potential for a more shareholder-friendly capital policy as a constraint, following the upsize of HealthEquity's share buyback program to $1.6 billion in May. However, the agency noted that only $547 million of the authorization has been repurchased to date. The stable outlook indicates a balanced view of the company's credit strengths and potential risks.

Specific Rating Actions

In addition to the corporate family rating, Moody's announced the following changes:

• Probability of Default Rating: Raised to Ba2-PD from Ba3-PD.
• Senior Unsecured Notes: The rating for HealthEquity's $600 million notes was upgraded to Ba3 from B1, one notch below the corporate family rating, reflecting their subordination to secured obligations.
• Liquidity Rating: The company's Speculative Grade Liquidity rating was maintained at SGL-1, indicating a very good liquidity profile supported by approximately $265 million in cash and strong expected future cash flow.