Moody's cuts AmeriPath ratings

Moody's Investors Service said it downgraded AmeriPath Inc.'s senior secured credit facilities to B2 from B1 and the company's increased $350 million senior subordinated notes due 2013 to Caa1 from B3. Moody's also lowered the company's senior implied rating to B2 from B1 and its senior unsecured issuer rating to B3 from B2.

Moody's said it based its action on the continued decline in operating performance of AmeriPath since its March 2003 leveraged buyout and on the turnaround in the business the new senior management team will need to implement.

The outlook is stable.

Moody's said the ratings reflect the company's high leverage and modest coverage ratios; flat revenues resulting from increased competition; pricing pressure from managed care in the face of increased volumes; pressure on gross margins from higher fixed costs coupled with excess capacity; lower operating margins caused by higher expenses for labor, medical, health insurance and medical malpractice insurance; the loss of a national contract; the continued integration of previous acquisitions; the ability to retain affiliations with existing pathologists in addition to recruiting new pathologists to drive revenue and volume growth; higher private pay components of revenue mix resulting in increased bad debt accruals; and management turnover.

The ratings also reflect AmeriPath's leading market position in anatomic pathology; increased financial flexibility from longer term debt maturities; continuing support of demographic factors leading to potential volume improvements; the company's national scale; a good liquidity position with about $20 million of cash and full access to a $65 million revolver; and the strong equity sponsorship of Welsh Carson.

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