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11 Apr 2001
MOODY'S ASSIGNS RATINGS OF Ba3 AND B1 TO BEVERLY ENTERPRISES, INC.'S SENIOR REVOLVING CREDIT FACILITY AND SENIOR UNSECURED NOTES.; RATING OUTLOOK REMAINS STABLE
Approximately $955 Million of Debt Securities Affected.
New York, April 11, 2001 -- Moody's Investors Service assigned a B1 rating to Beverly Enterprises,
Inc.'s ("Beverly") proposed Rule 144A $200 million senior
unsecured notes and a Ba3 rating to the company's proposed $150
million senior revolving credit facility. The notes and the new
revolving credit facility will be used to refinance the company's existing
$375 million revolver. Moody's also confirmed the existing
ratings of Beverly.
The ratings affected are as follows:
· $200 million Senior Unsecured Notes, due 2009,
· $150 million Senior Revolving Credit Facility, due
2004, rated Ba3
· $180 million 9% Senior Unsecured Notes, due
2006 at B1
· $20 million 8.75% First Mortgage Bonds,
due 2008 at Ba2
· $30 million 8.625% First Mortgage Bonds,
due 2008 at Ba2
· Senior Implied Rating at Ba3
· Senior Unsecured Issuer Rating at B2
· $375 million Senior Revolving Credit Facility due 2001
The outlook for the ratings remains stable.
The ratings reflect the company's leverage and modest interest coverage,
its weak free cash flow, the increasing costs for labor, supplies
and utilities, the challenges of operating in a highly competitive
and regulated industry and the ongoing costs of conducting business in
the state of Florida. Factors supporting the ratings include stabilizing
operating trends, a more favorable reimbursement environment relative
to recent years, favorable demographic trends and an anticipated
improvement in the company's credit profile.
Over the past two years, Beverly's performance has suffered along
with the entire long-term care industry during the transition to
PPS. Revenue and EBITDA has declined and has led to a deterioration
in credit statistics. While the company has survived the worst,
and indeed looks strong relative to many of its peers, including
several which filed for bankruptcy, it remains burdened with considerable
debt. Leverage for FYE 2000 was high at 4.9 times (as measured
by Total Adjusted Debt/EBITDAR), down slightly from 5.0 times
for FYE 1999. Interest coverage for FYE 2000 was thin at 1.4
times (as measured by EBITDAR-Capex/(Interest + Rents)).
The company also has additional obligations not incorporated into these
statistics. The liabilities include about $70 million of
off balance sheet medium term notes collateralized by accounts receivable
and about $95 million due to the government stemming from the settlement
of the government investigation into the company's Medicare cost reports
("the settlement"). In total, this increases the company's
FYE 2000 balance sheet debt of $791 million by approximately 20.8%,
and adjusted debt of $1.71 billion by 9.7%.
(The company's synthetic lease of about $110 million is factored
in through rent expense.)
Given the company's significant debt burden, Moody's is concerned
over the company's modest cash flow. For FYE 2000, the company
reported cash flow from operations of only $37 million, which
represented approximately 5% of balance sheet debt. This
amount was insufficient to cover capital expenditure of $76 million
for the year. Cash flow for the year was reduced by a $30
million payment to the government as part of the settlement. Going
forward, the impact of the settlement will be $18.1
million reduction annually through 2008. FYE 2000 cash flow was
also hurt by a growth in accounts receivable, though early indications
for FY 2001 is positive. Moody's anticipates that Beverly will
improve its cash flow generation in the coming years, and when available,
free cash flow will be used to reduce leverage.
With the passage of the Benefits Improvement and Protection Act of 2000
("BIPA") this past December, the long-term care industry's
woes relating to reimbursement issues have likely bottomed-out.
Despite this positive, nursing homes are still under pressure,
on the expense side, from the rising costs of labor and liability
expenses. The problem of rising liability expense is particularly
acute in Florida. Beverly has, however, announced that
it intends to sell its Florida business as a result of the challenges
of operating in that state. While visibility regarding the sale
is minimal, Moody's expects the results to be positive for Beverly.
Supporting the ratings, Moody's notes that Beverly's operating trends
have been relatively stable and even show some recent signs of improvement.
The company, moreover, was hurt much less severely than many
of its competitors following the Balance Budget Act of 1997. When
many of the large national chains were increasing leverage to finance
acquisitions and expansion of ancillary services prior to PPS, Beverly's
management chose to be more conservative. The company focused on
managing its portfolio of nursing homes, on cutting cost,
and in preparation for PPS, on bringing services (such as rehabilitation
therapy) in house and on the conversion to the new payment system.
When PPS was implemented, Beverly was better positioned to absorb
cuts in reimbursements and to adjust its cost structure to maintain margins.
For FYE 2000, the company managed to produce EBITDAR margins of
13.3%, down only slightly from 13.9%
in 1998. Occupancy has stabilized at 87% for FYE 2000 (87.2%
for FYE 1999) and EBITDA has improved to $239 million from $224
million in 1999. Under the company's recently announced three-year
plan, Moody's expects trends to improve modestly as the company
streamlines its portfolio of nursing homes (25% of the company's
nursing facilities consistently under-perform), re-engineers
its management structure and seeks overall margin improvements through
expanding its existing non-core businesses. The non-core
businesses, including home health and contract therapy services,
are higher margin, require lower levels of capital investments and
presents better opportunities for growth.
Structurally, the Ba3 rating on the senior revolving credit facility
reflects the security interest in nine properties together with a pledge
of stock of certain subsidiaries. The ratings on the senior unsecured
notes, which are guaranteed, reflect their effective subordination
to certain mortgage debt and the company's outstanding receivable securitization
program. Additionally, the ratings on the first mortgage
bonds reflect the value of their collateral package.
Beverly Enterprises, Inc., headquartered in Fort Smith,
Arkansas, is a leading provider of post-acute healthcare
in the United States, operating 531 skilled nursing facilities,
34 assisted living centers, 165 outpatient clinics, and 58
home health and hospice agencies.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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