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Rating Action:

Moody's rates Alliance Healthcare's new credit facilities Ba3; CFR affirmed at B1

Global Credit Research - 20 Jun 2011

Approximately $780 million of rated debt affected

New York, June 20, 2011 -- Moody's Investors Service rated Alliance Healthcare Services, Inc.'s ("Alliance") new $590 million senior secured credit facilities Ba3 and affirmed all other ratings including the Corporate Family and Probability of Default ratings at B1. The outlook remains stable.

Proceeds are intended to refinance the existing credit facilities, pay transaction expenses and extend out the revolver and term loan maturities to 2016 & 2017, respectively. The transaction has only a negligible impact on leverage.

The following ratings were assigned:

$470 million senior secured term loan B at Ba3 (LGD 3, 35%);

$120 million revolving credit facility at Ba3 (LGD 3, 35%);

The following ratings were affirmed:

Corporate Family Rating at B1;

Probability of Default Rating at B1;

$190 million senior notes at B3 (LGD 6, 90%) from (LGD 5, 89%)

$450 million existing senior secured term loan at Ba3 (LGD 3, 34%);

$120 million existing revolving credit facility at Ba3 (LGD 3, 34%).

Speculative Grade Liquidity Rating at SGL-2;

The ratings on the existing $450 million term loan and $120 million revolver will be withdrawn upon the close of the new bank facilities:

Alliance's B1 Corporate Family Rating reflects the company's relatively high financial leverage, weak interest coverage and challenging top line performance. High unemployment and lower client volumes have adversely impacted both revenues and operating margins. While volumes continue to be down, pricing pressures persist for the MRI and PET/CT businesses. Growth in 2011 is largely expected to come from acquisitions, primarily in radiation oncology, a segment which the company is set on expanding.

Alternatively, the rating is supported by Alliance's good liquidity position, characterized by stable free cash flow generation and a sizable revolving credit facility. The rating also reflects the company's unique business model of partnering with hospitals, which shields Alliance from the direct and immediate effect of changes in third party reimbursement and allows the company to expand based on demand for services rather than bearing the risk of non-hospital, physician based greenfield de novo development.

The stable outlook reflects Moody's expectation that the company can continue to mitigate the challenges presented by the current economic environment, continue to post stable operating results and generate free cash flow to fund expansion. Moody's also expects that the company will maintain a disciplined approach to acquisitions and its use of available cash for further investments in the business.

The outlook could be changed to positive if the company can demonstrate solid positive growth and maintain profitability in this difficult operating environment. However, Moody's believes that pressures on parts of the company's business may prevent this type of improvement in the near-term. Positive pressure on the ratings would also be predicated on the company's ability to effectively integrate acquisitions without a material detriment to operating results. Should the company generate positive growth in profitability, resulting in deleveraging below 4 times and 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. Moody's could also consider a downgrade if the company undertakes debt-financed acquisitions, should liquidity deteriorate or debt to EBITDA increase above 5 times.

The principal methodology used in rating Alliance Healthcare Services, Inc. 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.

Alliance HealthCare Services, Inc. ("Alliance") is a national provider of outpatient diagnostic imaging and radiation oncology services. The company maintained 559 diagnostic imaging and radiation oncology systems, including 304 MRI systems and 126 PET or PET/CT systems at March 31, 2011. The company operated 136 fixed-site imaging centers, which constitutes systems installed in hospitals or other medical buildings on or near hospital campuses. The company also operated 27 radiation oncology centers and stereotactic radio surgery facilities. Pro forma revenue for the twelve months ended March 31, 2011 was approximately $519 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Ron Neysmith
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 rates Alliance Healthcare's new credit facilities Ba3; CFR affirmed at B1
No Related Data.

 

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