Kinetic's Recap Addresses Maturities, Liquidity

Kinetic Concept's recapitalization will add extra debt to the company's profile, but it will help the company to address some liquidity and maturity issues, said Jordan Grant, Standard & Poor's analyst. The company's recapitalization package includes a $480 million, seven-year term loan; a $100 million, six-year revolving credit; a $205 million senior subordinated notes offering and $270 million in convertible redeemable preferred stock. S&P assigned a BB- rating to the new credit and a B rating to the new notes.

The San Antonio manufacturer of specialty hospital and noninvasive medical devices finds strength in its vacuum assisted closure (VAC) technology. S&P expects medium-term sales prospects for this device to be very attractive.VAC now contributes to more than half of Kinetic's revenues, adding a certain degree of vulnerability to the income, Grant noted, but the technology has good patent protection. Kinetic also has relationships with several group-purchasing organizations and Medicare reimbursements help to bolster the patient reception of the VAC technology. "We feel that the strength of the business can support the debt at the new rating," said Grant.

Kinetic's new debt package will replace a $208 million credit and $200 million of existing subordinated debt with an overall increase in debt. But S&P states that the company's post-transaction, lease-adjusted leverage of 3.9 times debt-to-EBITDA still falls within the ratings category. S&P also notes the increased financial flexibility resulting from a longer dated debt maturity profile. Kinetic's new credit facility will represent 75% of the company's debt structure. The loan will be secured by all of the company's assets, but S&P believes that the likelihood of full principal recovery could diminish in the event of default. Martin Landon, v.p. and acting cfo, did not return calls by press time.