"Kindred Healthcare Inc. Assigned Preliminary 'B+' Rating, Stable Outlook; Senior Secured Debt Rated 'B+(Prelim)'
Louisville, Ky.-based post-acute care provider Kindred Healthcare Inc. plans to issue $600 million Asset-Backed revolving credit facility, and a $700 million secured term loan B.
The company will use proceeds from the term loans as part of the financing necessary to fund its acquisition of RehabCare Group Inc. and pay transaction fees.
We are assigning our preliminary 'B+' corporate credit rating, preliminary 'B+' issue-level rating, and preliminary recovery rating of '3' to the company's new senior secured term loan B.
Our stable rating outlook reflects our view that the company will continue to benefit from low-single-digit organic growth and will reap synergies by eliminating most of RehabCare's corporate overhead, but will not meaningfully improve its financial risk profile within the next year or so.NEW YORK
(Standard & Poor's) March 10, 2011--Standard & Poor's Ratings Services said today that it assigned its preliminary 'B+' corporate credit rating to Kindred Healthcare Inc. We also assigned a preliminary issue-level rating of 'B+' (the same as the corporate credit rating) and assigned a preliminary recovery rating of '3' to the company's proposed term loan. The rating outlook on the company is stable.
The rating on Kindred Healthcare reflects the reimbursement risk of the Kindred's businesses as well as the relatively competitive and fragmented market characteristics for the services they provide, said Standard & Poor's credit analyst David Peknay. Moreover, while the acquisition of RehabCare will expand its position in post-acute care services, the debt required for the transaction contributes to its aggressive financial risk profile.
We expect that after the completion of the RehabCare acquisition, Kindred will derive about 70% of its revenues from government sources. Although a major portion of its services are provided to a large number of third-party facilities through contractual relationships, the weak business risk profile incorporates indirect risk to Kindred if possible changes in regulations or reimbursement hurts its contractual partners. When considering its facility-based businesses, primarily its 226 skilled nursing facilities and 118 long term acute care hospitals, we consider the risk to its margins of potentially significant, but currently unforeseen adverse changes to payment rates or payment methodology by government health reform efforts to limit health costs. Additionally, the long-term outlook for long term acute care hospitals may become cloudy if there are large-scale changes in the regulations and payment methodology for all post-acute-care services.
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