Moody's rates Manor Care convertible at Ba1

Moody's Investors Service assigned a Ba1 rating to Manor Care Inc.'s new $90 million senior convertible notes due 2023 as well as its new $200 million senior unsecured bank facility and $200 million senior notes due 2013.

The outlook is positive.

The ratings reflect Manor Care's leading position as a provider of long-term care services, and its successful transition from a business model which focuses on custodial-type patients to one which focuses on more profitable, short-stay, post-acute care patients, Moody's said.

The ratings also consider the fact that all long term care operators continue to face ongoing uncertainty, stemming from constraints from both Medicare and Medicaid (accounting for 64% of Manor Care's revenues) as well as higher patient liability expenses.

The outlook reflects improved performance in the past several years. Despite a tough operating environment, the company has reduced debt with free cash flow generated by a more profitable business model and one-time improvements in working capital.

The ratings could be upgraded if the company sustains a longer track record of stabilization in patient liability expenses, Medicaid and Medicare reimbursement constraints do not materially worsen and management focuses on deleveraging following the acceleration of its share repurchase program, Moody's said.

However, the outlook or ratings could be changed if patient liability expenses begin to escalate, reimbursement pressures increase and/or management pursues additional debt-financed share repurchases.

S&P ups American Greetings outlook

Standard & Poor's raised the outlook for American Greetings Corp. to stable from negative and affirmed the existing ratings, including the convertibles at BB+.

The change reflects significantly improved liquidity and planned near-term strengthening of the capital structure.

Ratings are supported by a strong market position, large cash balances and availability under its revolving credit and accounts receivables securitization facilities, S&P said.

These factors are tempered by the greeting card industry's mature and very competitive business conditions. Moreover, while improving, the overall financial profile is still relatively weak for the ratings.

Pro forma for the repayment of the term loan B, cash at February 2003 totaled about $90 million. The company's $75 million revolving credit facility due August 2003 and $120 million revolving credit facility due January 2006 were fully available, as well as its up to $200 million accounts receivable securitization facility.

Liquidity also benefits from American Greetings' free operating cash flow generation. Debt maturities during the next five years consist of $175 million of 7% convertible subordinated notes in 2006 and $260 million of 11.75% senior subordinated notes in 2008.

Ratings stability reflects the expectation that American Greetings will continue to focus on improving operations and strengthening its overall financial profile in the intermediate term, S&P said.

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