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Rating Action:

MOODY'S PLACES CREDIT RATINGS OF HILLHAVEN CORPORATION AND HORIZON HEALTHCARE CORPORATION UNDER REVIEW FOR POSSIBLE UPGRADE

30 Jan 1995
MOODY'S PLACES CREDIT RATINGS OF HILLHAVEN CORPORATION AND HORIZON HEALTHCARE CORPORATION UNDER REVIEW FOR POSSIBLE UPGRADE New York, 1/30/1995 -- Moody's Investors Service placed the credit ratings of Hillhaven Corporation and Horizon Healthcare Corporation under review for possible upgrade following the announcement of Horizon's proposed stock merger with Hillhaven. According to the rating agency, the credit quality of both entities has improved in recent periods. Hillhaven's financial restructuring of 1993 has given the company greater financial flexibility and has thus allowed management to focus its resources on improving operations. Likewise, Horizon is beginning to benefit from the early 1994 acquisition of Greenery Rehabilitation, and the company's recent equity offering has improved its balance sheet. In addition, Moody's believes that the combined entity, which would be the second-largest for-profit nursing home company in the United States, would have a considerable market presence, and merger synergies include reduced corporate overhead, greater purchasing power and the opportunity to expand specialty services in nursing facilites. The rating agency added that the extent of any upgrade for either entity would be determined, in part, by a close review of the synergies provided by the transaction, by the final agreed upon acquisition price and method of financing, as well as by a resolution of the uncertainties concerning the future of the Hillhaven common shares owned by National Medical Enterprises (NME).
Hillhaven's substantial property base, especially in California, Massachusetts, and North Carolina, makes the company an attractive acquisition target for many of the relatively new operators that have focused aggressively on improving margins by adding specialty services to basic properties. While Horizon has offered to pay $28 in Horizon common stock for each share of Hillhaven common stock, no final deal has been reached. The rating agency emphasized that any deal involving debt financing would be viewed more negatively than an equity transaction, given the pro-forma consolidated entity's already
high leverage.
Of equal concern to the rating agency is the uncertainty regarding the ownership of a significant portion of the company's equity. NME, which currently owns 27% of Hillhaven's common stock and all of its preferred stock ($90 million liquidation value), has recently announced its intention to monetize its investment. As with a debt-financed acquisition, Moody's emphasized that any alternative regarding the future of those shares (i.e. a share repurchase) that would involve a further leveraging of the company would be viewed negatively by the rating agency.
The debt issues under review for possible upgrade include Hillhaven's 10.125% senior subordinated notes, due 2001 (rated B2), Hillhaven's 7.75% convertible subordinated debentures, due 2002 (rated B3), and Horizon's 8.75% convertible senior subordinated notes, due 2015 (rated B3 and issued by Greenery).
Horizon Healthcare Corporation, headquartered in Albuquerque, New Mexico, operates 15 specialty hospitals, 15 special subacute units, and 128 nursing homes. Hillhaven Corporation, headquartered in Tacoma, Washington, operates 272 nursing facilities.

No Related Data.
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