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Announcement:

Moody's revises Alliance's ratings outlook to negative: B1 CFR affirmed

Global Credit Research - 13 Oct 2011

Approximately $780 million of debt affected

New York, October 13, 2011 -- Moody's Investors Service affirmed Alliance Healthcare Services, Inc.'s ("Alliance") B1 Corporate Family and Probability of Default Rating. The ratings outlook was revised to negative from stable. At the same time, Moody's lowered Alliance's Speculative Grade Liquidity Rating to SGL-3 from SGL-2.

The outlook change to negative reflects earnings weaknesses in its core imaging scan business and higher than previously expect leverage, which resulted in Alliance seeking financial covenants relief with an amendment on Sept. 29, 2011. Overall, both MRI and PET/CT scans --which represent about 77% of revenues -- continue to be negatively impacted from pricing pressures driven by recently increased competition and lower than expected growth from its oncology business. The downgrade of Alliance's Speculative Grade Liquidity Rating reflects the reduction in revolver size to $70 million from $120 million, as part of the amendment, tighter covenant cushions expected over the next four quarters, and weaker free cash flow than previously expected.

The following rating was lowered:

Speculative Grade Liquidity Rating at SGL-3 from SGL-2

The following ratings were affirmed/LGD assessment revised:

Corporate Family Rating at B1;

Probability of Default Rating at B1;

$460 million senior secured term loan B at Ba3 (LGD 3, 32%) from (LGD 3, 34%);

$70 million revolving credit facility at Ba3 (LGD 3, 32%) from (LGD 3, 34%);

$190 million senior notes at B3 (LGD 5, 85%) from (LGD 6, 90%);

RATINGS 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 lower client volumes have adversely impacted both revenues and operating margins. While volumes continue to be down, pricing pressures persist for the MRI business, resulting in a revised forecast for fiscal 2011 failing to meet Moody's expectations. Revenue increases for the fiscal year can be attributed to the company's acquisitions, primarily in radiation oncology, a segment that the company is set on expanding. Moody's expects top-line declines through 2012. In Addition, the covenant relief only lasts for 24 months and Moody's expects that Alliance will need to continue to deleverage over the next few quarters in order to achieve sufficient cushion to meet covenants once this relief ends.

The ratings benefit from 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 negative outlook reflects the challenges over the next few quarters with Alliance continuing to experience weak organic growth within its imaging scan business from increased pricing pressures due to industry overcapacity and lower volumes associated with declining physician visits.

The ratings could be downgraded if continued pressure on the imaging business cannot be offset through expansion and cost containment initiatives. Moody's could also consider a downgrade if the company undertakes debt-financed acquisitions, should liquidity deteriorate, or debt to EBITDA go above 5 times.

Moody's doesn't believe an upgrade is likely in the near-term. However, the outlook could be changed to stable if the company can demonstrate solid organic growth and, at the same time, deleverage and achieve greater cushion within its financial covenants. Should Alliance improve its liquidity position, generate positive organic growth in top line revenues, while deleveraging below 4 times and adjusted free cash flow to debt above 8%, the ratings could be upgraded.

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. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Alliance HealthCare Services, Inc. ("Alliance") is a national provider of outpatient diagnostic imaging and radiation oncology services. The company maintained 571 diagnostic imaging and radiation oncology systems, including 304 MRI systems and 127 PET or PET/CT systems at June 30, 2011. The company operated 138 fixed-site imaging centers, which constitutes systems installed in hospitals or other medical buildings on or near hospital campuses. The company also operated 36 radiation oncology centers and stereotactic radio surgery facilities.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the 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 considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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 revises Alliance's ratings outlook to negative: B1 CFR affirmed
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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