Moody's upgrades HomeVi

Moody's Investors Service said it upgraded the ratings of HomeVi SaS (Domus Vi), including its corporate family rating to B1 from B2, probability of default rating to B1-PD from B2-PD and senior secured notes due 2021 to B2 from B3. The outlook is stable.

The rating action concludes the review for upgrade that began on June 16 after Moody's announced a revised methodology for the capitalization of operating leases.

The rating action also follows HomeVi's announcement that it intends to issue €125 million of additional 6 7/8% senior secured notes under the existing indenture. These additional note proceeds along with €90 million of new equity by current shareholders in the form of common stock and convertible bonds will be used to finance the €210 million acquisition of Inversiones Socicare, SL, cover €6 million of acquisition-related fees and potentially refinance a portion of the acquired company’s debt of €5 million. HomeVi will also assume €57 million of existing debt.

The agency said the upgrade reflects a reduction in Moody's adjusted leverage to 4.8x in 2015 from 6.3x in 2014, which is mostly driven by a reduction in capitalized operating leases representing a significant amount of Moody's adjusted debt.

HomeVi's B1 rating reflects limited deleveraging prospects given Moody's expectations for modest organic growth, the company's exposure in France to a highly regulated sector, the sensitivity to the French economic environment, high operating leverage and the exposure to the politic and economic situation in Spain after the proposed acquisition, the agency said.

Conversely, Moody’s said the rating is supported by the company’s market-leading position in the fragmented French nursing home sector, the growth achieved over the period 2011-14, the attractive features of the French nursing home sector and the growing proportion of protective benefits in Spain as percentage of GDP, which should benefit HomeVi after the acquisition.

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