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29 Jun 2010
Approximately $2.2 billion of debt affected
New York, June 29, 2010 -- Moody's Investors Service affirmed the ratings of Vanguard Health Holding
Company II (Vanguard), including the B2 Corporate Family and Probability
of Default ratings, following the announcement that the company
would be offering $225 million of senior unsecured notes due 2018.
The outlook for the ratings is stable.
Moody's understands that the proceeds of the notes will be used to pre-fund
a portion of the planned acquisition of Detroit Medical Center (DMC --
Ba3 long-term bond rating). The acquisition remains subject
to regulatory review, which is expected to take approximately 75
to 90 days. The regulatory process, which includes state
Attorney General, Department of Health and CON approval, was
initiated on June 10, 2010.
Based on Vanguard's current operations, Moody's estimates
that the incremental debt will raise leverage to approximately 6.3
times. The affirmation of Vanguard's B2 CFR incorporates
our view that the company can effectively operate with this higher leverage
until the DMC transaction is completed and potentially over the longer
term if the deal is not completed for any reason. However,
we expect that Vanguard will be able to complete the transaction and benefit
from the acquired cash flow and EBITDA. Moody's estimates
that pro forma for the acquisition of DMC, adjusted debt to LTM
EBITDA at March 31, 2010 would have been in the range of 5.2
times. It should be noted that Moody's calculation of adjusted
leverage includes our standard adjustment to capitalize operating leases
as well as the estimated amount of DMC's pension liability.
Vanguard's B2 Corporate Family Rating reflects the considerable financial
leverage of the company and the risks involved in completing a transformational
acquisition that entails entering a new and challenging market and will
require a substantial investment in future periods. Additionally,
while the DMC transaction will provide additional scale and decrease reliance
on the San Antonio and Phoenix markets, geographic concentration
in the Detroit market, in terms of total revenue contribution,
will be even higher than the company's previous concentrations.
The rating also reflects the expectation that the company will still maintain
good liquidity over the near term, characterized by a continuation
of the stable cash flow generation that has allowed for a portion of the
DMC transaction to be funded out of available cash.
For further details refer to Moody's Credit Opinion for Vanguard Health
Holding Company, Inc. on moodys.com.
The following ratings were affirmed/LGD assessments revised:
$260 million senior secured revolving credit facility due 2015,
to Ba2 (LGD2, 17%) from Ba2 (LGD2, 20%)
$815 million senior secured term loan due 2016, to Ba2 (LGD2,
17%) from Ba2 (LGD2, 20%)
$1,175 million (including the $225 million add on)
senior unsecured notes due 2018, B3 (LGD5, 76%)
Speculative Grade Liquidity Rating, SGL-2
Corporate Family Rating, B2
Probability of Default Rating, B2
Moody's last rating action was on January 20, 2010, when we
assigned ratings to the company's recapitalized debt structure,
including the current credit facility and unsecured bonds and also assigned
a Speculative Grade Liquidity Rating of SGL-2.
The principal methodology used in rating Vanguard was Moody's Global For-Profit
Hospital Industry Methodology, published in September 2008 and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Headquartered in Nashville, Tennessee, Vanguard owns and operates
acute care hospitals and complementary outpatient facilities principally
located in urban and suburban markets. As of March 31, 2010,
Vanguard operated 15 acute care hospitals in four states. For the
twelve months ended March 31, 2010, the company generated
approximately $3.4 billion in net revenue.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's affirms Vanguard's ratings following offering of add-on senior unsecured notes; outlook stable
No Related Data.
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