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Rating Action:

Moody's rates Renal Advantage acquisition vehicle B2; new credit facility rated Ba3; outlook is stable

23 Nov 2010

Approximately $400 million of debt rated

New York, November 23, 2010 -- Moody's Investors Service assigned a B2 Corporate Family and Probability of Default Rating to Renal Advantage Holdings, Inc. (Renal Advantage or NewCo). Moody's also assigned a Ba3 (LGD2, 27%) rating to the company's proposed credit facility, consisting of a $50 million revolving credit facility and a $350 million term loan. Moody's understands that the proceeds of the facility, along with $206 million of unrated subordinated mezzanine debt and an equity contribution from KRG Capital Partners, LLC, Bain Capital Ventures, LLC and others will be used to purchase the company from existing shareholders, including Welsh Carson Anderson & Stowe, and refinance the company's existing debt. The ratings outlook is stable. The existing ratings of Renal Advantage Holdings, Inc. (OldCo) will be withdrawn at the close of the transaction.

Following is a summary of ratings assigned:

Renal Advantage Holdings, Inc. (NewCo):

$50 million senior secured revolving credit facility due 2015, Ba3 (LGD2, 27%)

$350 million senior secured term loan due 2016, Ba3 (LGD2, 27%)

Corporate Family Rating, B2

Probability of Default Rating, B2

The following ratings are unchanged and will be withdrawn at the close of the transaction:

Renal Advantage Holdings, Inc. (OldCo):

$60 million senior secured revolving credit facility due 2015, Ba3 (LGD2, 29%)

$245 million senior secured term loan due 2015, Ba3 (LGD2, 29%)

Corporate Family Rating, B2

Probability of Default Rating, B2

RATINGS RATIONALE

Renal Advantage's (NewCo) B2 rating reflects the expectation that the company will operate with a considerable amount of financial leverage following the transaction. Moody's believes that Renal Advantage will have the highest pro forma adjusted leverage of the rated peer group of dialysis providers, estimated at approximately 6.3 times at September 30, 2010, including management's anticipated synergies. We believe this level of leverage limits financial flexibility in this period in which the company, and the industry, will be adjusting to changes in the reimbursement environment. However, Moody's also considered the company's improvement in operations since its inception and the relatively stable business profile of the dialysis sector characterized by increasing incidences of end stage renal disease (ESRD) and the medical necessity of the service provided.

The stable rating outlook reflects our expectation that the company should continue to see stable non-acquired growth, which should provide opportunity to reduce leverage through both EBITDA expansion and free cash flow generation. 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.

Given the expectation of initially weak credit metrics for the rating category, we do not anticipate a near term upgrade of the ratings. However, if the company can realize the expected synergies, continue to realize robust growth rates, and materially reduce leverage through a combination of debt repayment and increased profitability, Moody's could consider upward pressure on the ratings. More specifically, the company would have to be expected to sustain adjusted debt to EBITDA approaching 5.0 times before considering a change in the outlook to positive or an upgrade of the ratings.

Conversely, the rating could be downgraded if the company's credit metrics do not improve as a result of either the inability to recognize expected synergies or the incurrence of additional debt for acquisitions or shareholder initiatives. Additionally, negative pressure on the ratings would be considered if the bundled prospective payment system has an unfavorable impact on Renal Advantage's business model.

This is the first time ratings are being assigned to Renal Advantage Holdings, Inc. (NewCo).

For further details, refer to Moody's Credit Opinion for Renal Advantage Holdings, Inc. on Moodys.com.

Renal Advantage'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 Renal Advantage's core industry and Renal Advantage's ratings are believed to be comparable to those other issuers of similar credit risk.

Headquartered in Brentwood, TN, Renal Advantage is a provider of outpatient dialysis services to patients with chronic kidney failure. As of September 30, 2010 Renal Advantage is the third largest for-profit outpatient dialysis provider with 149 centers and one laboratory in 19 states. The company recognized approximately $504 million in revenue for the twelve months ended September 30, 2010.

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 assigning a credit rating.

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

New York
Christina Padgett
Senior Vice President
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.

Moody's rates Renal Advantage acquisition vehicle B2; new credit facility rated Ba3; outlook is stable
No Related Data.
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