Cross Country Health, a provider of temporary healthcare staffing, has a strong track record in its industry as well as a good competitive position, but the company's operating focus is not diversified. This lack of diversity makes the company more vulnerable to material adverse changes, such as a shift in regulation, contributing to Standard & Poor's BB- rating to Cross Country's new $200 million credit facility. The facility includes a $125 million "B" term loan and a $75 million revolver.
Offsetting Cross Country's narrow focus is its modest leverage multiple of about two times. In addition, under the terms of the new credit agreement the company must maintain a maximum total debt-to-EBITDA of 2.5 times. "They are not heavily leveraged," noted Jill Unferth, Standard & Poor's analyst. "If there were swings in their demand patterns, they need a little bit of cushion to offset their narrower operating focus." The demand for Cross Country's services is softening due to weak economic conditions as nurses increase the number of shifts worked and hospitals stretch the resources of their permanent staff. But the outlook in the long-term is good with a nursing shortage and an aging and growing U.S. population among the factors likely to contribute to demand. The trends look favorable both for the hospital industry and Cross Country's services, said Unferth.
Cross Country has announced its intention to acquire the assets of Med-Staff for $104 million in cash, plus an earn-out provision up to a maximum of $37.5 million based on 2003 performance. Post-acquisition, Cross Country will be the nation's largest provider of temporary healthcare staffing. A portion of the new credit facility will be used to fund the acquisition and S&P believes that the company will also use the debt to finance future acquisitions. Moderate-sized debt financed acquisitions have been factored into the current rating with no near-term acquisitions expected until the integration of Med-Staff is complete. S&P does note, however, that management has a history of acquiring operations and then de-levering. Calls to Emil Hensel, Cross Country cfo, were not returned by press time.