Moody's upgrades Rural/Metro

Moody's Investors Service said it upgraded Rural/Metro Corp.'s $93.5 million at maturity 12¾% senior discount notes due 2016 to Caa1 from Caa2. Moody's also upgraded subsidiary Rural/Metro LLC's $125 million 9 7/8% senior subordinated notes due 2015 to B3 from Caa1 and $167 million senior secured credit facilities to B1 from B2. Rural/Metro's B2 corporate family rating was affirmed.

The outlook was changed to positive from stable.

The upgrade and change in outlook reflect the improvements that the company has made in top-line growth, margin and leverage, the agency said. Adjusted debt to EBITDA decreased to 6x for the 12 months ended Dec. 31 from 6.7x in 2004, and Moody's predicted that this ratio will further improve to roughly 5x or less during 2006. EBITDA margin from continuing operations improved to 9.8% in 2005 from 6.1% in 2003.

Moody's said these improvements are the result of numerous factors, including strong revenue growth in states with favorable demographics, new contract wins, a concerted effort to exit communities with an unfavorable payor mix and an increasing frequency of obtaining rate increases and subsidies.

Rural/Metro's ratings are supported by its position as a leading provider in a competitive, fragmented market for medical transportation services, the broad geographic dispersion of its services, the material barriers to entry into the emergency transport business and its longstanding customer relationships, the agency said.

Weighing on the ratings is the company's high leverage, modest free cash flow to debt and a payor mix that is heavily weighted to government programs.

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