Moody's rates Skilled Healthcare

Moody's Investors Service assigned a senior implied rating of B2 to Skilled Healthcare Group Inc., a B1 rating to Skilled Healthcare's first-lien credit facilities comprised of a $35 million senior secured revolver due 2009 and $140 million senior secured term loan due 2010 and a B3 rating to Skilled Healthcare's $85 million second-lien senior secured term loan due 2011.

The rating action follows the announcement by Skilled Healthcare that it will use the proceeds from the new credit facilities, including a portion of its revolver, along with about $8 million in cash to refinance the company's existing debt and pay related fees, expenses and prepayment penalties, Moody's said.

The outlook is stable.

Moody's said the ratings reflect the company's high debt leverage following the transaction, the company's aggressive expansion into the higher-acuity skilled Medicare market, Skilled Healthcare's susceptibility to changes in government reimbursement programs either through Medicare or Medicaid, exposure to professional liability claims against the company, the risks associated with maintaining adequate professional and clinical staffing at the company's facilities in light of the ongoing nurse labor shortage, lack of geographic diversification and the concentration of the business in difficult markets with regard to professional liability and labor costs and the lack of a significantly new or independent board following Skilled Healthcare's emergence from two years in bankruptcy protection.

At March 31 pro forma for the transaction, Skilled Healthcare would have had debt/EBITDA of 5.1x and adjusted debt/EBITDAR of 5.4x. Additionally, EBITDA coverage of interest would have been 2.5x while EBIT coverage of interest would have been 2.1x.

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