August 21, 2012 / 10:22 PM / 5 years ago

TEXT-S&P Lowers Rtgs On LifeCare Holdings Inc. To 'D'

Overview

-- U.S. long-term acute care hospital operator LifeCare Holdings Inc. missed an interest payment on its $119.3 million outstanding senior subordinated notes.

-- We are lowering our corporate credit rating on the company, as well as our issue-level rating on the senior subordinated notes, to 'D'.

Rating Action

On Aug. 21, 2012, Standard & Poor's Ratings Services lowered its corporate credit rating on Plano Texas-based LifeCare Holdings Inc to 'D' from 'CCC-', following the missed interest payment on the company's $119.3 million senior subordinated notes. We also lowered our issue-level rating on the senior subordinated notes to 'D' from 'C'. The recovery rating on the notes remains unchanged at '6'. LifeCare operates 27 long-term acute care hospitals in 10 states.

Rationale

The rating actions stem from LifeCare Holdings' disclosure that it did not make the interest payment on its senior subordinated notes, due Aug. 15, 2012. We consider a missed interest payment as a default when the nonpayment is a function of the borrower being under financial stress even though a payment default has not occurred relative to the legal provisions of the notes, and despite the 30-day grace period to make the payments. This incorporates our view that the payment will not be made in full during the grace period. If the senior subordinated debt is not refinanced or defeased in full by May 15, 2013, the maturity on its senior secured credit facility is accelerated to May 15, 2013.

Recovery Analysis

The issue rating on LifeCare's senior subordinated debt is 'D' with a recovery rating of '6', indicating our expectation of negligible (0 to 10%) recovery in the event of a payment default. (For the complete recovery analysis, see Standard & Poor's recovery report on LifeCare, to be published following this report on Ratings Direct.)

Related Criteria And Research

-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009

-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Downgraded

To From

LifeCare Holdings Inc.

Corporate Credit Rating D CCC-/Negative/--

Subordinated D C

Recovery Rating 6 6

0 : 0
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