Moody's Investors Service has assigned a Ba2 rating to DaVita Inc.'s $425 million senior secured credit facility due to concerns over the cost of labor. Russell Pomerantz, v.p. and senior analyst, said retaining employees in lower level jobs of the health care industry is a challenge. "It's getting more difficult to attract and retain staff. There are better paying jobs where you don't have to poke and clean up after people," he said. DaVita, headquartered in Torrance, Calif., is a dialysis service for patients suffering from kidney failure. A company official did not return calls for comment. The credit is in syndication.
The dialysis industry is also expected to experience 5-7% annual growth. "The top four providers control about 60% of the industry," Pomerantz said, noting that DaVita is rated second. He attributes the growth in the health care sector to an aging population. "People are getting older, which contributes to the prevalence of end-stage renal disease. Unfortunately, what's bad for the population is good for the economy."
Also considered in the rating is the potential outcome of pending inquiry by the U.S. Attorney's Office into some of the company's historical practices, including billing, operating procedures and the company's financial relationship with its physicians. Moody's notes that there haven't been any indications of wrongdoing or criminal actions against the company, but adds that the outcome is uncertain. The rating further states that any issues occurred prior to the company's restructuring and prior to new management's oversight.
Supporting the rating is the company's strong management, put in place in 1999. "They're credited with the company's turnaround. Prior to them coming in the company had integration issues," Pomerantz said. "In the past, the company made acquisitions and consolidation its focus, and it got in trouble. Now they're just improving the company by doing things like closing areas that aren't profitable."