S&P rates Empi loan B+

Standard & Poor's assigned a B+ rating to Empi Corp.'s proposed $175 million credit facility. The outlook is stable.

S&P said Empi's ratings reflect the company's niche position in orthopedic rehabilitation products and its leveraged capital structure.

Empi derives a measure of revenue predictability from its relationships with physicians and physical therapists, from its reputation for quality, and from its recurring consumable revenue stream, which accounts for about 20% of sales, S&P noted.

Still, the company is focused in a niche industry, and has a relatively small sales base. The majority of Empi's revenues are derived from its electric stimulation equipment, and although much of this technology has been used in physical therapy for decades, it is still vulnerable to changes in technology and reimbursement.

Empi was privatized in a 1999 LBO carried out by its equity sponsor, The Carlyle Group. At the time of that transaction, leverage was 4.9x lease-adjusted debt to EBITDA. Since then, the company has been able to meaningfully reduce leverage, aided by cash flow generated from a favorable operating performance, S&P said. Nevertheless, the recapitalization will leave Empi with significant debt.

Empi's senior secured bank facilities are rated the same as the company's corporate credit rating. S&P said it is reasonably confident that debtholders will experience a meaningful recovery of principal in the event of default or bankruptcy, despite potentially significant loss exposure.

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