S&P rates Res-Care facility B+, raises outlook

Standard & Poor's assigned its B+ senior secured debt rating to special needs care provider Res-Care Inc.'s proposed $135 million credit facilities. The outlook was raised to stable from negative.

The facility is rated one notch above the corporate credit rating, reflecting S&P's confidence that the distressed enterprise value would fully cover creditor claims in the event of a default.

The new facilities are expected to have a four-year term and consist of a $100 million revolver and a $35 million term loan. At the same time, S&P revised its rating outlook to stable from negative, reflecting the company's commitment to refinance its credit facility and purchase all of the $87 million 6% convertible subordinated notes due in December 2004 around the end of 2003 with cash on hand.

S&P said the transactions will improve the company's financial flexibility and bring its financial profile in line with the ratings, given its business risk. The new credit facility and the early retirement of the convertible subordinated notes are subject to conditions that Res-Care expects to satisfy.

Pro forma for the transaction, the company is expected to have about $5 million to $10 million in cash. At Sept. 30, Res-Care had $95 million in cash, compared with $72 million at Dec. 31.

The company should also have about $56 million of unused capacity on its proposed $100 million senior secured bank credit facility. (The facility will be secured by a first perfected security interest in all of the borrower's assets and, through secured guaranties, in all of its subsidiaries' assets.)

The company had $44 million of letters of credit used on its revolving credit facility and $9 million of cash collateral on deposit for insurance as of Sept. 30. These obligations have grown from a total of $30 million as of Dec. 31, 2001.

Res-Care's maintenance capital requirements are modest, and the company does not pay common stock dividends, nor does it have a common share repurchase program. Although Res-Care is involved in a number of lawsuits related to the ordinary course of business, none is considered material at this time, S&P said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.