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Moody's downgrades 21st Century Oncology
Moody's Investors Service said it downgraded 21st Century Oncology, Inc.'s corporate family rating to Caa2 from B3, probability of default rating to Caa2-PD from B3-PD, $100 million senior secured revolving credit facility due 2016 and $90 million senior secured term loan due 2016 to B1 (LGD2) from Ba3 (LGD2), $350 million senior second-lien 8 7/8% notes due 2017 to Caa2 (LGD3) from B2 (LGD3), $380 million senior subordinated 9 7/8% notes due 2017 to Caa3 (LGD5) from Caa2 (LGD5) and speculative grade liquidity rating to SGL-4 from SGL-3. The outlook was changed to negative from stable.
The rating action follows the company's announcement that it has entered into a recapitalization support agreement with Vestar Capital Partners and a group of holders of its outstanding subordinated notes. Under the agreement, the company expects to obtain additional liquidity through an equity contribution or subordinated debt of at least $150 million on or before Oct. 1. In the absence of this, the existing subordinated notes will be exchanged for 95% of equity in the reorganized company.
The agency said the downgrade reflects the company's high leverage, its weak liquidity, the unsustainable nature of its current capital structure and the increased potential of a debt-for equity-exchange.
The change in outlook, notwithstanding the company's stronger second-quarter performance, reflects the uncertainty regarding the company's ability to obtain additional liquidity in the timeframe discussed and, in the absence of that, the likelihood of a debt-for-equity exchange for the existing subordinated noteholders, which Moody’s would view as a limited default.
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