Moody’s Investors Service has cut CCS Medical Inc.’s corporate family rating from Caa1 from B3. It also has downgraded the company’s first lien senior secured credit facilities to B2 from B1, but affirmed the Caa2 rating on the second lien term loan. CCS Medical is a Clearwater, Fla.-based portfolio company of Warburg Pincus.
Moody’s Investors Service downgraded CCS Medical, Inc.’s (“CCS”) corporate family rating to Caa1 from B3. Moody’s also downgraded the company’s first lien senior secured credit facilities to B2 from B1, but affirmed the Caa2 rating on the second lien term loan. The ratings outlook remains negative. The downgrade reflects Moody’s concern over the company’s declining operating performance and deteriorating credit metrics. The business-to-business segment’s (Sanvita) NovaMax product line sales have been lower than anticipated due to significant competitive pressures while growth in CCS’s core business-to-consumer diabetes segment has been slowing due to a weakening economy and reimbursement reductions. As such, the company has very limited flexibility under the financial covenants governing its senior secured credit facilities. Notwithstanding these risks, the rating considers the potential for the financial sponsor (Warburg Pincus) to contribute cure equity in the event of a financial covenant default and the presense of positive cash flow year-to-date in 2008.
The following ratings were downgraded:
Corporate Family Rating to Caa1 from B3;
Probability of Default Rating to Caa1 from B3;
$50 million 1st lien sr. secured revolving credit facility due 2012 to B2 (LGD3, 31%) from B1 (LGD3, 32%);
$307 million 1st lien sr. secured term loan due 2012 to B2 (LGD3, 31%) from B1 (LGD3, 32%).
The following rating was affirmed:
$110 million 2nd lien sr. secured term loan due 2013 at Caa2. Point estimate revised to (LGD5, 77%) from (LGD5, 79%).
The negative ratings outlook reflects Moody’s concern over continued covenant compliance, and CCS’s ability to improve sales and earnings declines given competitive pressures and a weakening economy.
Additional information can be found in the CCS Credit Opinion published on Moodys.com.
The last rating action was on October 22, 2007, when Moody’s upgraded CCS’ corporate family rating to B3 from Caa1and assigned a negative ratings outlook. This action completed a ratings review for possible upgrade that was initiated on June 29, 2007. CCS’s ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as i) the business risk and competitive position of the company versus others within its industry, ii) the capital structure and financial risk of the company, iii) the projected performance of the company over the near to intermediate term, and iv) management’s track record and tolerance for risk. These attributes were compared against other issuers both within and outside of CCS’s core industry and CCS’s ratings are believed to be comparable to those of other issuers of similar credit risk.
CCS Medical, Inc., based in Clearwater, Florida, is holding company whose operating subsidiaries are Chronic Care Solutions, Inc. and MPTC Holdings, Inc. The company is a leading mail-order provider of medical supplies – including diabetes, respiratory and wound care products – to chronically-ill patients. Warburg Pincus is the largest shareholder and equity sponsor for CCS Medical.