Moody's downgrades Chem Rx

Moody's Investors Service said it lowered Chem Rx Corp.'s corporate family and probability-of-default ratings to B3 from B2, its $25 million senior secured revolving credit facility due 2012 and $80 million first-lien senior secured term loan due 2013 to B2 (LGD3, 35%) from B1 (LGD3, 38%) and its $37 million second-lien senior secured term loan due 2014 to Caa2 (LGD5, 80%) from Caa1 (LGD5, 84%). The SGL-4 speculative-grade liquidity rating was affirmed.

The outlook remains negative.

The agency said the downgrade reflects Chem Rx's weaker-than-expected operating performance - including higher-than-expected operational costs to support its growth, thus pressuring profitability - and the very limited flexibility under its financial covenants.

Notwithstanding these concerns, the ratings are supported by Chem Rx's cost-reduction plans, efforts to improve operational efficiency, continued success in growing organic sales and improvements in gross margins due to improved facility utilization and increased distribution of generic drugs, Moody's said.

The negative outlook reflects Moody's concern over the company's ability to timely execute on its operational improvement and cost-reduction plans given its weak liquidity profile.

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