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01 Dec 2010
$500 million offering
New York, December 01, 2010 -- Moody's Investors Service assigned a Ba3 to Omnicare, Inc.'s
new convertible senior subordinated bond offering and a (P)Ba3 to senior
subordinated securities listed under Omnicare's WKSI shelf.
At the same time, due to the expected tender of up to $525
million in senior convertible notes, Moody's downgraded Omnicare's
existing senior subordinated notes to Ba3 from Ba2 and existing convertible
senior notes to B2 from B1. All other ratings, including
Omnicare's Ba3 Corporate Family Rating (CFR) and SGL-1,
were affirmed. The rating outlook remains negative.
Proceeds from this offering are expected to be used to fund the tender
of up to $525 million of 3.25% convertible senior
notes. We understand that any remaining proceeds will be used toward
Omnicare's Ba3 CFR reflects its moderately high financial leverage,
and uncertainty associated with healthcare reform legislation and reimbursement
risk facing the long term care pharmacy sector. As a result,
we believe Omnicare's credit ratios, including leverage, will
need to exceed the Ba3 level to help offset this concern. Although
Omnicare is large relative to other Ba3 rated companies based on revenues
and has a leading national position in this niche market, the company
still contends with competitive pressures, largely from local market
players. As the company transitions to a new senior management
team, there is higher risk associated with uncertainty related to
strategic initiatives and financial policies. Although cultural
changes are expected to be implemented, it is too early to determine
the extent to which these changes will benefit operating performance.
Because of recent operating issues, including a declining bed count,
lower census at nursing homes, lower script volume, and competitive
pricing pressures, the ability to achieve or sustain expected metrics
is less certain, contributing to a negative outlook. Based
on twelve month financials ended September 30, 2010, Debt/EBITDA
is estimated at 4.1 times ("B" range). In Moody's
view, a key concern is the decline in script volume and the effects
on Omnicare's purchasing power and competitive pricing.
If the company sees protracted or further deterioration in operating results,
or if deleveraging is not expected to occur, the ratings could be
downgraded. If, however, Omnicare is able to reverse
negative operating trends and can realize better cushions to offset reimbursement
uncertainties, the outlook could return to stable.
Ratings assigned with a negative outlook:
New $500 million senior subordinated notes at Ba3, LGD3,
Sr. Subordinated Shelf at (P)Ba3
Ratings affirmed with a negative outlook:
Corporate Family Rating at Ba3
Probability of Default Rating at Ba3
Secured revolver at Baa3, LGD1, 6%
SGL-1 Speculative Grade Liquidity Rating
Omnicare Capital Trust I
PIERS Trust Preferreds at B2, LGD6, 94%
Omnicare Capital Trust II
PIERS Trust Preferreds at B2, LGD6, 94%
Ratings downgraded with a negative outlook:
Senior subordinated notes to Ba3 LGD3, 44% from Ba2,
Convertible senior notes to B2, LGD5, 85% from B1,
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Omnicare, Inc. (OCR), headquartered in Covington,
Kentucky, is the leading provider of institutional pharmacy services
to the long term care sector.
Information sources used to prepare the credit rating are the following:
parties 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 assigning
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
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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.
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a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
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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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba3 to Omnicare's new sub notes; affirms Ba3 CFR; outlook negative
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