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Rating Action:

Moody's assigns B2 CFR to EMSC; proposed credit facility rated B1; outlook is stable

05 Apr 2011

Approximately $1.4 billion of debt rated in conjunction with the contemplated LBO

New York, April 05, 2011 -- Moody's Investors Service assigned a B2 Corporate Family and Probability of Default Rating to Emergency Medical Services Corporation (EMSC). Moody's also assigned a B1 (LGD3, 34%) rating to the proposed $1,440 million term loan due 2018. Concurrently, Moody's assigned a Speculative Grade Liquidity Rating of SGL-1. Moody's understands that the proceeds of the term loan, along with an equity contribution and an issuance of unsecured debt, will be used to fund the acquisition of the company by Clayton, Dubilier and Rice, LLC and to retire the company's existing debt at AMR Holdco, Inc. We understand that EMSC is also expected to obtain a $350 million asset-based revolving credit facility due 2016 (not rated by Moody's) and has committed financing for an unsecured bridge facility of up to $950 million. The ratings outlook is stable.

The existing ratings of AMR Holdco, Inc. (the borrower in the existing corporate structure) remain unchanged. We expect to withdraw the ratings of AMR Holdco, Inc. upon the closing of this transaction, at which time the outstanding debt will be repaid.

The rating actions are subject to the conclusion of the transaction, as proposed, and Moody's review of final documentation.

Following is a summary of Moody's actions.

Ratings assigned:

Emergency Medical Services Corporation:

$1,440 million senior secured term loan due 2018, B1 (LGD3, 34%)

Corporate Family Rating, B2

Probability of Default Rating, B2

Speculative Grade Liquidity Rating, SGL-1

Ratings unchanged and to be withdrawn at the close of the transaction:

AMR Holdco, Inc.:

$125 million senior secured revolving credit facility due 2015, Baa3 (LGD2, 26%)

$425 million senior secured term loan due 2015, Baa3 (LGD2, 26%)

Corporate Family Rating, Ba1

Probability of Default Rating, Ba2

Speculative Grade Liquidity Rating, SGL-1

RATINGS RATIONALE

"EMSC's B2 Corporate Family Rating reflects the considerable debt load the company will operate with following the proposed leveraged buyout," said Dean Diaz, a Moody's Senior Credit Officer. "While most of the company's credit metrics will be detrimentally affected by the significant debt load, we expect the company to maintain very good liquidity with the expectation of stable free cash flow that could be used to repay debt," continued Diaz.

We estimate that this transaction will increase leverage to around 6.8 times, which is very high for the B2 rating and leaves only a modest equity cushion based on the current estimated purchase multiple. We expect pro forma cash flow generation to decline due to the related interest burden. However, we also expect the company to focus on reducing debt with available free cash flow following the transaction. The rating also reflects the benefits of the company's scale in each of its operating segments, which are otherwise very fragmented among other providers.

The stable outlook reflects our expectation that the company should continue to benefit from both organic expansion of operations as well as moderate sized acquisitions. Additionally, while cash flow generation is expected to be negatively impacted by the increased interest burden associated with the considerable debt load, we believe the company will continue to generate sufficient free cash flow and focus on debt reduction. The outlook also reflects our anticipation that the company will remain disciplined in its acquisition strategy with respect to leverage and its expansion into newer service areas.

The Speculative Grade Liquidity Rating of SGL-1 reflects our expectation that the company will have very good liquidity over the four quarters following the transaction, characterized by sufficient cash flow to fund working capital, capital expenditure needs and mandatory amortization requirements over the forecast period and access to a proposed $350 million asset based revolving credit facility.

Upward pressure on the rating is somewhat limited in the near term given the significant increase in leverage with the proposed transaction. However, if the company improves operating results or repays debt such that debt to EBITDA is sustained below 5.5 times and free cash flow to debt is expected to be sustained above 5%, Moody's could upgrade the ratings.

If the company takes on additional debt to fund acquisitions or incurs operating difficulties such that leverage were not be reduced from current levels, Moody's could downgrade the ratings. Additionally, if government reimbursement levels are significantly reduced in either segment of the company's business, professional liability claims rise materially above current levels, or if payor mix shift materially impacts pricing, such that the company was expected to have negative free cash flow for a sustained period, we could downgrade the ratings.

For further details refer to Moody's Credit Opinion for Emergency Medical Services Corporation on moodys.com.

This is the first time Moody's has assigned a rating to Emergency Medical Services Corporation, the borrower in this transaction. The last rating action on AMR Holdco was on March 4, 2010 when we upgraded the company's Corporate Family Rating to Ba1 from Ba2. The company's existing debt was also upgraded at that time and ratings were assigned to the company's new credit facility. Finally, the Speculative Grade Liquidity Rating was upgraded to SGL-1 from SGL-2.

The principal methodologies used in this rating were Global Business & Consumer Service Industry published in October 2010 and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Emergency Medical Services Corporation is a leading provider of emergency medical services in the U.S. EMSC operates through two business segments: EmCare is the company's emergency department and hospital physician outsourcing segment and AMR is a leading provider of medical transport in the U.S. For the year ended December 31, 2010 the company reported revenues of approximately $2.9 billion.

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 and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Dean Diaz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B2 CFR to EMSC; proposed credit facility rated B1; outlook is stable
No Related Data.
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