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Rating Action:

Moody's assigns Ba3 to Alliance Healthcare's new credit facilities; B1 CFR unchanged

Global Credit Research - 08 May 2013

New York, May 08, 2013 -- Moody's investor Service assigned a Ba3 rating to Alliance Healthcare Services, Inc.'s ("Alliance") proposed $390 million senior secured credit facilities, consisting of a $50 million revolver expiring 2018 and a $340 million senior secured term loan due 2019. In addition, Alliance's Corporate Family Rating at B1, the Probability of Default Rating at B1-PD and its B3 senior notes rating remain unchanged. The outlook remains negative.

Proceeds from the new credit facilities will be used to refinance the existing $70 million revolver and $325 million senior secured term loan B.

Following is a summary of Moody's rating actions and LGD estimates:

Alliance Healthcare Services, Inc.

Ratings assigned:

$50 million senior secured revolving credit facility at Ba3 (LGD 3, 30%)

$340 million senior secured term loan at Ba3 (LGD 3, 30%)

Ratings unchanged:

Corporate Family Rating at B1

Probability of Default Rating at B1-PD

Speculative Grade Liquidity Ratings at SGL-2

$190 million senior notes at B3 (LGD 5, 85%)

Ratings to be withdrawn at closing:

$70 million revolving credit facility at Ba3 (LGD 3, 30%)

$325 million senior secured term loan B at Ba3 (LGD 3, 30%)

Rating Rationale

Alliance's B1 Corporate Family Rating reflects the company's high financial leverage, weak interest coverage and challenging top line performance. High unemployment and weak client volumes have adversely impacted both revenues and operating margins for diagnostic imaging providers including Alliance. For the period ending March 31, 2013, Alliance continued to be impacted by lower volumes and pricing, primarily for their PET/CT business. Over the next few quarters, we expect continued top-line softness due to the aforementioned macroeconomic factors as well as the company's continuing actions to rationalize non-profitable business.

The ratings benefit from Alliance's unique business model of partnering with hospitals, which shields the company from the direct effect of changes in third party reimbursement. This model also allows the company to expand based on demand for services rather than bearing the risk of non-hospital, physician-based de novo development.

The negative outlook reflects the challenges over the next 12 months as Alliance continues to experience a weak pricing environment due to industry overcapacity and lower volumes associated with declining physician visits.

Moody's does not believe that an upgrade is likely in the near-term. However, the outlook could be changed to stable if the company can demonstrate solid revenue and volume growth, while also simultaneously deleveraging. Should Alliance generate positive organic revenue growth, deleverage below 4 times and sustain adjusted free cash flow to debt above 8%, the ratings could be upgraded.

The ratings could be downgraded if continued pressure on the imaging business cannot be offset through expansion and cost containment initiatives. Moody's would consider a downgrade if the company pursues a debt-financed acquisition, if liquidity deteriorates, or if debt to EBITDA rises above 5 times.

The principal methodology used in rating Alliance was the Global Business & Consumer Service Industry Methodology, published in October 2010. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Alliance HealthCare is a national provider of outpatient diagnostic imaging and radiation oncology services. The company maintained 490 diagnostic imaging and radiation oncology systems, including 267 MRI systems and 119 PET and PET/CT systems at December 31, 2012. The company operates 128 fixed-site imaging centers, which constitutes systems installed in hospitals or other medical buildings on or near hospital campuses. The company also operates 29 radiation oncology centers and stereotactic radio surgery facilities. Revenue for the twelve months ended March 31, 2013, was approximately $462 million.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ron Neysmith
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba3 to Alliance Healthcare's new credit facilities; B1 CFR unchanged
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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