Moody's rates Capella loans B3, Caa2

Moody's Investors Service said it assigned first-time ratings to Capella Healthcare Inc., including a B3 rating to the $40 million senior secured revolving credit facility due 2011 and $97 million senior secured first-lien term loan due 2012 and a Caa2 rating to the $58 million senior secured second-lien term loan due 2013. Moody's also assigned a B3 corporate family rating.

The outlook is stable.

The proceeds of the proposed offering, along with $66 million of common equity contributed by GTCR Golder Rauner LLC and management, will be used to acquire four hospitals from HCA Inc.

Moody's said that despite the strength of the management team, their familiarity with the acquired assets, and opportunities to improve the operating results of the company's hospital base, the ratings are constrained by high financial leverage and the expectation of future debt-financed acquisitions, the absence of a track record of positive free cash flow, significant concentration of EBITDA in one of the acquired facilities, and the lack of any meaningful scale or geographic diversity.

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