Moody's may downgrade MedQuest

Moody's Investors Service said it placed the ratings of MedQuest, Inc. and that of its parent, MQ Associates, Inc., on review for possible downgrade following weak operating results for the quarter ended March 31, the recent loss of the services of MedQuest's exclusive radiology provider in the company's Phoenix market and the uncertainty concerning the company's liquidity position given that its revolver expires in August and has yet to be renewed.

Ratings under review include MQ Associates' Caa1 corporate family and probability-of-default ratings and Caa3 (LGD6, 90%) $136 million senior discount notes due 2012, MedQuest's B1 (LGD2, 11%) $80 million senior secured revolving credit facility due August 2007 and $60 million senior secured term loan due 2009 and MedQuest's Caa1 (LGD4, 56%) $180 million senior subordinated notes due 2012.

The company's 10-Q report showed declining top-line revenue growth and resulting margin and cash flow compression, largely due to the combined impact of lower scan volumes and Medicare reimbursement cuts that took effect on Jan. 1. The agency said it is concerned that the reduction in revenues and cash flow will continue to strain the company's ability to reduce its debt and repay interest.

As for the revolver, it is Moody's understanding that the company is in discussions with its lenders regarding the extension of the revolver, modification of its term loan B repayment schedule and the amendment of certain financial covenants. The discussions are expected to conclude by month end.

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