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18 Jun 2007
Moody's downgrades LifeCare Holdings to Caa1; outlook negative
Approximately $480 million of rated debt affected.
New York, June 18, 2007 -- Moody's Investors Service downgraded the Corporate Family Rating
of LifeCare Holdings, Inc. ("LifeCare") to Caa1
from B3. Moody's also lowered the rating of the company's
senior secured credit facilities to B2 from B1 and its senior subordinated
notes to Caa3 from Caa2. The outlook for the ratings remains negative.
Concurrently, Moody's affirmed LifeCare's Speculative
Grade Liquidity Rating of SGL-4.
The downgrade of the company's Corporate Family Rating reflects
the negative trends in LifeCare's operating results and credit metrics
resulting from a combination of the loss of business in the New Orleans
market following the effects of Hurricane Katrina and significant cuts
in Medicare reimbursement. LifeCare has not been able to fully
offset the detrimental effects of those considerable negative developments.
Additionally, the fiscal year 2008 final rule from the Centers for
Medicare and Medicaid Services ("CMS") will result in additional pressure
on Medicare reimbursement when it becomes effective beginning July 1,
The ratings reflect declining margins, a lack of growth in EBITDA
and waning interest coverage metrics. Further, the Caa1 rating
reflects the continued deterioration of LifeCare's financial flexibility
and the limited ability to decrease adjusted leverage.
The negative outlook continues to reflect the expectation of prolonged
pressure on the operations of the company resulting from decreased reimbursement
and the significant amount of financial leverage. Additionally,
Moody's sees very little opportunity for LifeCare to repay debt
over the near term as we expect the company to use cash flow and available
cash balances to address development plans. The outlook also reflects
the expectation of continued focus on long-term acute care hospital
("LTACH") reimbursement by CMS, which could result in further reductions
of Medicare payment rates or further restrictions on patient admission
criteria, thereby affecting volume.
LifeCare's Speculative Grade Liquidity Rating reflects the continued
pressure on the company's liquidity position. Moody's
expects the company to continue to invest heavily in development projects
resulting in negative free cash flow over the next twelve months.
However, Moody's notes that the company recently completed
an amendment of its credit facilities providing additional cushion on
financial covenant requirements, which should ensure that the company
will have access to its revolver over the forecast period. Additionally,
the company recently announced the completion of two sale and leaseback
transactions related to facilities under construction, which provided
approximately $26 million.
For further details, refer to Moody's Credit Opinion on LifeCare
A summary of Moody's ratings actions follows:
Corporate Family Rating, to Caa1 from B3
Probability of Default Rating, to Caa1 from B3
$75 million senior secured revolving credit facility due 2011,
to B2 (LGD3, 30%) from B1 (LGD3, 30%)
$255 million senior secured Term Loan B due 2012, to B2 (LGD3,
30%) from B1 (LGD3, 30%)
$150 million 9.25% senior subordinated notes due
2013, to Caa3 (LGD5, 85%) from Caa2 (LGD5, 84%)
Speculative Grade Liquidity Rating, SGL-4
Headquartered in Plano, TX, LifeCare Holdings, Inc.
(LifeCare), through its subsidiaries, operated 19 long-term
acute care hospitals in nine states as of March 31, 2007.
LifeCare recognized revenue of approximately $321 million for the
twelve months ended March 31, 2007.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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