Moody's rates Sun Healthcare loans Ba2, note B3

Moody's Investors Service assigned B1 corporate family and probability-of-default ratings and an SGL-2 speculative grade liquidity rating to Sun Healthcare Group, Inc., Ba2 (LGD2, 27%) ratings to its proposed $50 million senior secured revolving credit facility due 2013, $40 million senior secured synthetic line of credit due 2013 and $345 million senior secured term loan due 2014, which includes a $55 million delayed draw term loan, and a B3 (LGD5, 82%) rating to its proposed $200 million senior subordinated notes due 2015.

The outlook is stable.

The proceeds of the proposed offerings are expected to be used to fund the $628 million acquisition of Harborside Healthcare Corp., including the retirement of existing debt and the acquisition of several facilities that Harborside has already agreed to acquire.

The agency said the B1 corporate family rating reflects the considerable financial leverage and associated interest expense following the transaction and Moody's expectation that the increased debt load will constrain the company's adjusted cash flow coverage of debt metrics, which are considered weak for the rating category.

However, the ratings also consider the substantial increase in scale and diversity resulting from the acquisition of Harborside, the favorable geographic diversity of the combined company, Sun Healthcare's ongoing restructuring since its emergence from bankruptcy in February 2002, which Moody's said it believes will continue to position the company to achieve improved operating performance, and the agency's belief that the acquisition of Harborside should allow the company to leverage its infrastructure and achieve improvements in patient mix and other operating efficiencies.

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