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Global Credit Research - 05 May 2010
Approximately $155 million of debt rated
New York, May 05, 2010 -- Moody's Investors Service assigned a B2 Corporate Family and Probability
of Default Rating to U.S. Renal Care, Inc.
(U.S. Renal). Moody's also assigned a B1 (LGD3,
35%) rating to the company's proposed senior secured credit
facility, consisting of a $30 million revolving credit facility
and a $125 million term loan. The outlook for the ratings
is stable. This is the first time Moody's has assigned a
rating to U.S. Renal.
Moody's understands that the proceeds of the facility, along
with available cash, an equity investment of $25 million
from the equity sponsors; SV Life Sciences, Thoma Cressey Equity
Partners, Salix Ventures and certain other existing shareholders
of U.S. Renal, and the issuance of $47.5
million of subordinated debt (not rated by Moody's), will
be used to fund the approximately $115.3 million acquisition
of Dialysis Corporation of America (DCA), which represents a multiple
of pro forma 2009 EBITDA less minority interest of about 7.7 times,
refinance existing debt and pay related fees and expenses.
U.S. Renal's B2 Corporate Family Rating reflects the
significant increase in leverage that will be taken on to complete the
transaction. While the acquisition of the DCA operations will improve
the geographic diversification of the company and increase the revenue
base, scale and market share are still relatively limited.
Moody's believes the similarities in U.S. Renal and
DCA's joint venture strategy should mitigate integration issues
and economies of scale are likely to be realized over time. Additionally,
the relatively stable business profile characterized by increasing incidences
of end stage renal disease (ESRD) and the medical necessity of the service
provided should support continued growth in the business. However,
the rating also considers risks associated with the focus on the dialysis
services marketplace and its high concentration of revenues from government
based programs, which are subject to a change in reimbursement methodology
on January 1, 2011, as well as an ongoing investigation of
DCA by the U.S. Department of Health and Human Services,
Office of the Inspector General (OIG).
The stable rating outlook reflects our expectation that the company can
effectively integrate the operations of DCA without disruption to clinic
operations or billing and collection practices and without significant
loss of physician partners. The outlook also reflects our expectation
that the company will look to grow primarily through de novo development
of new centers even during this period of integration. The stable
outlook also considers that the company will be able to adjust to the
changes in Medicare reimbursement that will be implemented on January
1, 2011 without significant detriment to the credit metrics.
For further details, refer to Moody's Credit Opinion on U.S.
Renal Care, Inc.
Following is a summary of the ratings assigned.
Corporate Family Rating, B2
Probability of Default Rating, B2
$30 million senior secured revolving credit facility due 2015,
B1 (LGD3, 35%)
$125 million senior secured term loan due 2016, B1 (LGD3,
U.S. Renal's ratings were assigned by evaluating factors
we believe are relevant to the credit profile of the issuer, such
as i) the business risk and competitive position of the company versus
others within its industry, ii) the capital structure and financial
risk of the company, iii) the projected performance of the company
over the near to intermediate term, and iv) management's track record
of tolerance for risk. These attributes were compared against other
issuers both within and outside of U.S. Renal's core industry
and U.S. Renal's ratings are believed to be comparable to
those other issuers of similar credit risk.
Headquartered in Plano, TX, U.S. Renal provides
dialysis services to patients who suffer from chronic kidney failure.
Pro forma for the acquisition of DCA, the company will provide dialysis
services through 84 outpatient facilities across nine states, over
12 home dialysis programs and in 24 acute dialysis programs. U.S.
Renal recognized approximately $153 million in revenue for the
year ended December 31, 2009 and would have recognized $252
million on a pro forma basis for the same period.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's assigns B2 CFR to U.S. Renal Care; credit facility rated B1; outlook is stable
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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