Moody's Investors Service has assigned a Ba3 rating toGenesis Health Ventures' $200 million "B" term loan. The add-on credit backs the company's acquisition of institutional pharmacy provider NCS HealthCare and will be used to refinance outstanding NCS debt, including $206 million of senior debt.
The rating incorporates the risk of policy changes associated with the sunset of Medicare give-backs that were approved under the Beneficiary Improvement Act of 2000, according to Russell Pomerantz, analyst at Moody's. While the provisions expired on Sept. 30, it is still unclear at this time whether Congress will approve an extension of the full amount of the give-back--about $30 per day per Medicare patient--a portion of the give-back or none, he noted. George Hager Jr., Genesis cfo, said policy talk indicated the give-backs could be roughly $15-18 per day per patient, resulting in a $17-20 million loss for the company. He added, however, that the amount would be manageable in light of recent expense cuts.
The rating also takes into account the risk involved with the potential acquisition, which is contested byOmnicare. While NCS has rejected Omnicare's offer, the add-on credit would be cancelled if Genesis does not acquire NCS, he explained. The transaction will increase leverage only moderately, from a debt-to-EBITDA ratio of 3.6 to 3.8 times pro-forma, and interest coverage will likely remain unchanged at 3.3 times.
Going forward, Moody's anticipates that financial results for the company's nursing home business, Eldercare, will remain stable with steady growth rates. On the other hand, the company's institutional pharmacy business, Neighborcare, is likely to reap higher revenues and enjoy improving margins post-acquisition.