Moody's Investors Service has upgraded the debt ratings of Magellan Health Services Inc. to B1 from B2, citing Magellan's progress in exiting from non-core operations and completion of asset sales that improve liquidity. Columbia, Md.-based Magellan has a $100 million revolver and is the largest behavioral managed care provider in the U.S. with over three times as many covered lives as the next competitor. The company recently sold National Mentor, a community-based foster care provider, for $100 million in cash, increasing liquidity, according to Moody's.
The managed behavioral health services business outlook is favorable, driven by mental health parity legislation and the resulting increased emphasis on controlling mental health care costs. Despite the ratings upgrade, Magellan still has a sizeable debt load and limited free cash flow for the next several years as a result of two potential earn-out payments to Aetna Inc. totaling $120 million. Another concern is ongoing litigation exposure including two class action lawsuits.
* Moody's has placed the $85.6 million credit facility of Houston-headquartered Loomis Fargo & Co under review for possible upgrade from B1. The planned acquisition of all the shares of Loomis Fargo by Swedish security firm Securitas AB prompts the review of the armored transportation provider. Securitas has increased its holding from 49% through the $102 million transaction, assuming $130 million of long-term debt. Moody's will consider the position of Loomis Fargo's debt within the capital structure of Securitas.
* LLS Corporation's $200 million secured credit facility, consisting of a $55 million revolver, $65 million term "A" loan and $80 million term "B," has been downgraded from B1 to Caa1. The St. Louis, Miss-based firm is a designer, manufacturer and marketer of precision injected molds and molded plastic components used in medical devices and pharmaceutical products. The downgrade is a result of the company's deteriorating financial condition resulting from extended project delays with major customers and the compounding effects of the economic slowdown.
Insourcing by global customers has virtually wiped out the company's international business, weakening the company's balance sheet. Debt to EBITDA is 6.8x and liquidity is considered poor given the absence of cushion under existing covenants, despite approximately $45 million available under the revolver.