Moody's downgrades InSight Health Services

Moody's Investors Service said it downgraded InSight Health Services Corp.'s corporate family and probability-of-default ratings to Caa3 from Caa1, $300 million senior secured floating-rate notes due 2011 to Caa1 (LGD2, 27%) from B2 (LGD2, 27%) and $250 million 9 7/8% senior subordinated notes due 2011 to Ca (LGD5, 83%) from Caa2 (LGD5, 83%).

The ratings were placed under review for possible further downgrade.

The agency said the downgrade primarily reflects the company's recent solicitation for the exchange of all of its senior subordinated debt for the company's common stock. While the exchange, if consummated, will save material interest costs, it is Moody's belief that this action will serve to only temporarily relieve the company's financial difficulties. On the day that the exchange of the senior subordinated notes for equity is completed, the issue will be assigned a Limited Default rating.

The downgrade also reflects a continuation of poor operating results characterized by declining revenues and cash flow, increasing costs and an incremental goodwill write-down of $29 million taken during the quarter ended Dec. 31. The agency said it continues to expect that the company will experience significant reductions in revenues and cash flows as a result of recent changes in Medicare reimbursements for its diagnostic imaging services.

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