Moody's rates Manor Care convertibles Baa3

Moody's Investors Service said it changed Manor Care Inc.'s outlook to negative from stable following the announcement that the company would issue $250 million of convertible notes to fund share purchases. The agency also assigned a Baa3

rating to the new issuance and affirmed the Baa3 ratings on the company's existing $500 million convertibles and $200 million senior notes.

The change in outlook reflects Moody's belief that Manor Care's debt-financed share purchase activity reduces the company's financial flexibility, which needs to be significantly stronger than that of other corporate issuers because of the industry's high dependence on governmental payers.

This is the second issuance of debt in eleven months for the primary purpose of buying back the company's stock. Moody's said it believes this is a shift in financial policy that appears to be more tolerant of increased leverage; a change that heightens the risk that the company would be unable to absorb a significant negative event at the current rating level and it is inconsistent with Moody's expectations considered in the upgrade of the company to investment grade in August 2004.

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