Moody’s ups U.S. Renal

Moody’s Investors Service said it upgraded U.S. Renal Care, Inc.’s senior unsecured notes to Ca from C, its corporate family rating to Caa1 from Caa3 and its probability of default rating to Caa1-PD from Caa3-PD. The agency also assigned ratings to the company’s new debt instruments including the new first-lien term loan due 2028 at Caa1 and the new first-lien notes at Caa1 due 2028.

Moody’s, however, said it downgraded U.S. Renal’s first-lien debt to Ca from Caa3.

“Concurrently with the downgrades, Moody's appended U.S. Renal's PDR with an /LD, signifying a limited default. The company recently exchanged its first-lien term loan for a new first-lien term loan and bought back some of its unsecured notes. The /LD designation reflects Moody's view that this constitutes a distressed exchange, which is a default under Moody's definition,” the agency said in a press release.

The transactions are not an event of default under the company’s debt agreements.

As a result of these transactions, U.S. Renal shaved its debt by roughly $490 million and cash interest expense by about $60 million per year.

“The upgrade of the CFR reflects the material debt reduction from the recently completed debt exchange which will also result in a meaningful reduction in interest expense. However, Moody's does not expect the company to generate positive free cash flow (after minority dividends) until 2025. Following this transaction, Moody's views U.S. Renal's capital structure as more sustainable,” the agency said.

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