S&P downgrades U.S. Renal

S&P said it downgraded its ratings for U.S. Renal Care Inc. and its secured debt to CCC+ from B- and its rating on the unsecured debt to CCC- from CCC. The recovery ratings of 3 on the secured debt and 6 on the unsecured debt are unchanged.

“The downgrade reflects our expectation for higher operating expenses and labor inflation to reduce adjusted EBITDA margins to 15% for fiscal 2022 from 20% for fiscal 2021. We also expect interest expense to increase, resulting in persistent free cash flow deficits and elevated leverage over the next several years. Despite recent improvements in revenue and volume growth, ongoing inflationary pressures and higher growth spending have contributed to a significant adjusted EBITDA margin decline,” S&P said in a press release.

Additionally, “We believe there is an increased likelihood of a below-par debt purchase. The company's 10 5/8% senior notes payable (due in 2027) are trading at less than 50 cents on the dollar and have traded low in the secondary market for several months. With USRC's high debt burden, we believe the potential for a below-par repurchase has increased. We could view such a transaction as a default if lenders do not receive the full amount originally promised,” S&P warned.

The outlook is stable.

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