S&P affirms Res-Care

Standard & Poor's said it affirmed the B+ corporate credit rating on Res-Care Inc. and lowered its corporate credit rating to B+ from BB- because of the weaker financial risk profile resulting from the leveraged buyout by its sponsor, private-equity firm Onex Corp.

The agency said it is now assigning a B+ rating on the company's proposed $190 million term loan B, which will mature in 2016, and revising the rating on the $275 million revolver to B+ from BB+ that was extended and will now mature in 2015. The 3 recovery rating indicates expectation for 50% to 70% recovery.

S&P also assigned a B- rating to the company's proposed $200 million senior unsecured notes with 6 recovery, indicating expectation for 0 to 10% recovery.

"The ratings on Res-Care reflect its weak business risk profile because of its high exposure to state budget cuts, slim profit margins and ongoing competitive pressures tied to its operation in a highly fragmented market," S&P analyst Tahira Wright said in a statement.

Its aggressive financial risk profile is reflective of its LBO by a financial sponsor and the proposed added debt burden will keep lease-adjusted leverage over the next few years between 4.0x to 4.5x, compared with historical levels of 3.3x, according to the agency.

These are predominant risk factors despite the company's successful track record of acquisitive growth, which has allowed it to expand and diversify its core operations, the agency noted.

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