Moody's upgrades Skilled Healthcare

Moody's Investors Service said it upgraded Skilled Healthcare Group, Inc.'s corporate family rating to B1 from B2 and probability of default rating to B1 from B2, along with its $135 million senior secured revolving credit facility due 2012 to Ba3 (LGD3, 36% ) from B1 (LGD3, 38%), $260 million ($248 million outstanding) senior secured first-lien term loan due 2012 to Ba3 (LGD3, 36%) from B1 (LGD3, 38%) and $130 million senior subordinated notes due 2014 to B3 (LGD6, 90%) from Caa1 (LGD6, 90%).

The agency also said it assigned a Ba3 rating (LGD3, 37%) to its $330 million senior secured first-lien term loan due 2016 and a Ba3 rating (LGD3, 37%) to its $100 million senior secured revolving credit facility due 2015.

The speculative grade liquidity rating is at SGL-3 but is expected to be upgraded to SGL-2 once the proposed transaction closes.

The outlook is stable.

The new loan is being used to refinance the company's existing first-lien term loan and repay the outstanding debt under its revolver. Moody's said it expects the company's new $100 million revolving credit facility to be undrawn at the close of the transaction.

The upgrade reflects an expectation that Skilled Healthcare will generate a meaningful amount of free cash flow throughout the next 12 to 18 months and use a sizeable portion of the cash flow toward debt repayment, the agency said.

The ratings are constrained by the company's modest size and concentration of revenues in two states, as well as the risk of reimbursement cuts from Medicare and Medicaid, Moody's said.

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