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07 Jan 2011
$220 million of bank debt rated
New York, January 07, 2011 -- Moody's Investors Service assigned a B2 Corporate Family and Probability
of Default Rating to National Specialty Hospitals, Inc. (d/b/a
National Surgical Hospitals) (NSH). Moody's also assigned
a B2 (LGD4, 51%) rating to the company's proposed senior
secured credit facilities, consisting of a $20 million revolver,
$170 million term loan and $30 million delayed draw term
loan. The outlook for the ratings is stable. This is the
first time Moody's has assigned ratings to NSH. Moody's
understands that the proceeds of the proposed credit facility, along
with an equity contribution, will be used to fund the acquisition
of the company by Irving Place Capital and repay existing debt.
Following is a summary of ratings assigned.
$20 million senior secured revolving credit facility due 2016,
B2 (LGD4, 51%)
$170 million term loan due 2017, B2 (LGD4, 51%)
$30 million delayed draw term loan due 2017, B2 (LGD4,
Corporate Family Rating, B2
Probability of Default Rating, B2
The B2 Corporate Family Rating reflects the considerable leverage NSH
will have following the acquisition of the company by Irving Place Capital.
The rating also reflects the relatively small scale of the company,
the expectation of an aggressive acquisition strategy and the unfavorable
regulatory scrutiny that has followed the physician owned specialty hospital
model. While healthcare reform legislation did not require changes
to the current ownership structure of the company's facilities,
it limits the ability to open new facilities or add beds at existing facilities.
However, the ratings also consider the company's plan to grow
revenue at existing facilities through service line extensions and the
relatively favorable payor mix at its hospitals, which limits exposure
to uncompensated care costs.
The stable rating outlook reflects our expectation that the company will
be able to continue to drive same store revenue growth, which should
provide an opportunity to reduce leverage through EBITDA growth.
The outlook also anticipates that while the company will look for acquisitions
in the surgical hospital space, NSH will maintain a disciplined
approach to its acquisition strategy and its use of additional leverage.
Given the expectation of considerable adjusted leverage and the relatively
small scale of the company, we do not foresee an upgrade of the
ratings in the near term. However, if the company increases
leverage to acquire facilities or experiences difficulty in growing same
facility revenue, Moody's could consider negative pressure
on the ratings. Additionally, the outlook could be changed
to negative or the ratings downgraded if there are additional restrictions
placed on the physician owned specialty hospital operating model or if
there are negative reimbursement developments related to the services
provided by the company's hospitals, especially in the orthopedic
area in which the company focuses.
This is the first time ratings are being assigned to National Specialty
For further details, refer to Moody's Credit Opinion for National
Specialty Hospitals, Inc. on Moodys.com.
The principal methodologies used in this rating were Global For-Profit
Hospital Industry published in September 2008, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Headquartered in Chicago, IL, NSH owns and operates surgical
facilities specializing in orthopedic, neurosurgery and more complex
general surgery cases. Most of the company's facilities are
operated in partnership or joint venture relationships with physicians
or other providers. As of September 30, 2010, the company
operated 14 surgical hospitals and seven ambulatory surgery centers.
The company recognized approximately $286 million in revenue for
the twelve months ended September 30, 2010.
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 assignin
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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates National Surgical Hospitals B2; assigns B2 rating to proposed bank debt; outlook is stable
250 Greenwich Street
New York, NY 10007
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