Moody's rates AMN loan Ba2

Moody's Investors Service assigned a Ba2 rating to AMN Healthcare, Inc.'s proposed $120 million senior secured term loan. The outlook is stable.

Proceeds from the $120 million Senior Secured Term Loan will help fund AMN's recently announced $180 million self-tender offer to purchase common stock and stock options. Cash on hand and approximately $25 million from the company's $75 million revolving credit facility, that is not rated by Moody's, will also contribute to the common stock and stock option repurchases.

Moody's said the rating reflects AMN's competitive position, its ability to attract nurses, strong demand for its travel nurses and a history of conservative balance sheet management, as well as recent revenue weakness.

Long-term demand is expected to remain strong due to hospitals' need for a variable staffing solution. In addition, the expected scarcity of nurses and the difficulty hospitals are having in attracting permanent nurses both suggest continued strong demand for AMN and other providers of traveling nurses.

The ratings are constrained, however, by recent revenue weakness, concerns about hospital nurse retention and productivity strategies and, to a degree, by the increased leverage resulting from the proposed transaction, Moody's said. For the second quarter of 2003, AMN experienced an 8% reduction in revenues from the first quarter of 2003. It is currently difficult to predict how long this weakness will continue. The weakness is a result of various factors including nurse productivity strategies at hospitals, such as increased overtime.

The stable rating outlook reflects expectations that AMN will deleverage going forward, Moody's said.

For the 12 months ending Sept. 30, 2003, debt to EBITDA is expected to be around 1.8x, Moody's added. Pro forma for the transaction, EBITDA coverage of interest is expected to be approximately 10.0x for the same period. Projected debt to free cash flow after capital expenditures is expected to be fairly modest at about 2.8x for the last twelve months ending September 30, 2003.

S&P rates AMN loan BB-

Standard & Poor's assigned a BB- rating to AMN Healthcare, Inc.'s proposed $120 million senior secured term loan due 2008 and its proposed $75 million senior secured revolving credit facility due 2008. The outlook is stable.

S&P said it rates the bank facility the same as the company's corporate credit rating because there is a strong likelihood of substantial (though not necessarily full) recovery of principal in the event of default or bankruptcy.

AMN's ratings reflect its single business focus in a highly competitive industry and variable demand for outsourced labor from hospital clients, S&P said. These concerns are partially offset by favorable long-term demand characteristics for temporary nurses, the company's position as an industry leader, and its relatively moderate debt leverage.

The company has recently faced weaker demand for temporary nurses because of the weak national economy, S&P said. The depressed economy has also reduced the number of alternative employment options for nurses, and as a result, more full-time nurses are forced to remain in their jobs. Some have also continued to work or delayed retirement because of layoffs or the potential layoffs of their spouses. This demand weakness based on the weak economy is likely to be temporary, and should be partially mitigated by the growing national nursing shortage.

While the company faces a challenging environment in the near term, long-term demand characteristics remain strong, S&P added. The country faces a national nursing shortage that should only worsen. Many nurses are approaching retirement; the U.S. Department of Health and Human Services estimates that 40% of nurses will be 50 years of age or older by 2010. Nursing schools are also graduating fewer students; the American Association of Colleges of Nursing estimated that the enrollment in nursing schools has dropped to 116,000 in 2002 from 127,000 in 1997. In addition, higher life expectancies and the aging of Baby Boomers should further increase the demand for nurses.

At the time of the common stock and stock option repurchase, total debt to EBITDA (excluding adjustments for operating leases) is expected to be less than 2x and total debt to capital is expected to be approximately 59% (excluding adjustments for operating leases). This capital structure is considered relatively moderate for its rating category, S&P said.

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