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TEXT-S&P revises Apria Healthcare Group rating outlook
2012年10月4日 / 晚上7点23分 / 5 年前

TEXT-S&P revises Apria Healthcare Group rating outlook

Overview
     -- U.S.-based Apria Healthcare Group reported negative $64 million of 
discretionary cash flow for the first half of 2012.
     -- The magnitude of the cash flow deficit raises doubt that the company 
will reduce its cash flow to our estimate of less than negative $20 million by 
the end of 2012 and return to positive free operating cash flow in 2013.
     -- We have revised the outlook to negative, reflecting less confidence 
that Apria will meet our expectation for cash flow over the next six quarters.
     -- We are affirming the 'B+' corporate credit rating and all other 
issue-level ratings.
 
Rating Action
On Oct. 4, 2012, Standard & Poor's Ratings Services revised its outlook to 
negative from stable on Lake Forest, Calif.-based Apria Healthcare Group Inc. 
The negative outlook reflects decreased confidence in Apria's ability to meet 
our expectation for cash flow over the next six quarters.

We affirmed the 'B+' rating. The issue-level rating on the A-1 notes is 'BB' 
(two notches above the corporate credit rating), with a recovery rating of 
'1', indicating our expectation for very high (90% to 100%) recovery in the 
event of payment default. The issue-level rating on the A-2 notes is 'B' (one 
notch lower than the corporate credit rating), with a recovery rating of '5' 
(10% to 30% recovery expectation).

Rationale
We assess Apria's financial risk profile as "aggressive," reflecting our 
expectation that adjusted leverage will remain between 4x and 5x over the near 
term.  The financial risk profile also takes into account the company's 
current trend of operating at a cash flow deficit. We expect its free 
operating cash flow (FOCF) to remain negative in 2012, but establish an 
improving trend from 2011 levels, and turn positive by 2013. The "weak" 
business risk profile considers Apria's exposure to third-party reimbursement, 
operating in a highly fragmented industry, and its ongoing challenges with 
managing the on-shoring of its billing and customer service functions. The 
company's leading position in providing specialized home health care services 
and equipment bolsters the company's business profile.

In the first half of 2012, Apria reported $125 million of EBITDA and generated 
negative free operating cash flow of $64 million. While we expect seasonality 
to benefit the company for the balance of the year, our full-year expectation 
is for about $300 million of EBITDA and an improvement in negative cash flow 
to less than $20 million. The extent of the improvement required to meet our 
full-year expectations raises concerns that the company may fall short. 
Improvement in cash flow generation is primarily predicated on the company 
reducing its bad debt and revenue adjustments and its ability to lower SG&A 
expenses. 

To measure profit trends for Apria, we use adjusted EBITDA, including 
adjustments for one-time charges primarily supporting its significant cash 
investment to return its billing function in house. Our base-case scenario for 
2012 and 2013 reflects adjusted EBITDA margins of around 12%. EBITDA margins 
for the first half of 2012 were about 10.5%. Our assumptions take into 
consideration our expectation of a stronger second half of 2012, driven by 
seasonality trends of higher demand for Apria's products and services, an 
improvement in bad debt expense and customer credits as a percentage of 
revenue, anticipated revenue growth stemming primarily from lower margin 
infusion businesses, and higher labor costs to support its re-on-shoring of 
its billing function. 

Despite somewhat depressed EBITDA, Apria's revenue growth is in line with our 
2012 expectations of mid- to high-single-digit revenue growth, reflecting 
mid-single-digit revenue growth in the respiratory and HME division. This 
segment has benefited from a full year of Praxair, added volume from securing 
new managed care contracts, and Medicare Round 1 competitive bidding areas 
(CBAs). Projected revenue growth in 2012 is further bolstered by our 
expectation of 10% organic revenue growth in its infusion therapy and enteral 
nutrition segment, benefiting from strong market growth trends.

Apria operates in the highly fragmented, $65 billion home health care market, 
specializing in respiratory therapy, infusion therapy, and HME. The industry 
benefits from a growing demand of patients preferring in-home care treatment 
and a strong pipeline of infusion/injectable drugs administered in the home or 
at ambulatory infusion suites. The home health care market is expected to grow 
5% annually, despite Medicare's cost-control programs across subsectors. 
Specifically, the respiratory and HME division is subject to the Round 2 
bidding process in 2012, which is scheduled to go into effect in mid-2013. 
This will affect more CBAs, resulting in a more competitive industry and lower 
contract rates. About $141 million of Apria's revenues and $20 to $25 million 
of EBITDA will be impacted by Round 2 competitive bidding. Managed care 
pricing and contract turnover are also risks in the industry.

While Apria's weak business risk profile incorporates inherent industry risks, 
the company benefits from a national platform, a leading market position, and 
a well-established reputation. This provides a competitive advantage among 
peers, and helps Apria secure new managed care contracts; it should also help 
them win new CBAs in the Medicare Round 2 bidding process. Apria's diverse 
payor and revenue mix somewhat mitigates the exposure of a lost contract or 
rate cut. However, Medicare and Medicaid reimbursement, albeit across a 
diverse product/service mix, is still 30% of total revenues. Apria has no 
significant concentration with any single commercial payor.

The aggressive financial risk profile reflects the company's existing credit 
metrics, prospects for continued negative free operating cash flow, and 
sponsor ownership. We expect leverage (using adjusted EBITDA) to remain 
between 4x and 5x through 2012.

Liquidity
We continue to view Apria's liquidity as "adequate," despite negative cash 
flow, because of the company's $250 million asset-backed revolver. We expect 
sources of cash to exceed mandatory uses over the next year. Our assessment of 
the company's liquidity profile incorporates the following expectations and 
assumptions:
     -- We expect sources of liquidity over the next 12 months to exceed uses 
by at least 1.2x. Liquidity sources include our expectation of operating cash 
flow in excess of $100 million, a $250 million ABL revolver and limited cash 
reserves, which should cover capital expenditures of about $155 million in 
2012. However, we believe, Apria will rely on the ABL for funding in 2012.
     -- We expect liquidity sources to continue exceeding uses, even if EBITDA 
declines by 15%.
     -- We expect there will be limited availability to absorb a high-impact, 
low-probability event.
     -- Covenant compliance is not a major factor, because the revolver has a 
springing covenant test that does not take effect unless Apria's excess 
availability goes below a certain percentage of its available borrowing base.
     -- Apria has no material debt maturities until 2014, when its A-1 and A-2 
notes expire.
 
Recovery analysis
For the complete recovery analysis, please see the recovery report on Apria, 
published May 4, 2012, on RatingsDirect. 

Outlook
Our negative rating outlook on Apria reflects our lower confidence that Apria 
will meet our cash flow expectations for 2012 and 2013, given year-to-date 
performance. A rating downgrade could result if the company's cash flow 
deficit is worse than our expectation of less than $20 million. A downgrade 
could also occur past 2012, if we believe the company is on a trajectory that 
jeopardizes our expectation for positive cash flow in 2013. The primary driver 
of better cash flow is Apria's ability to lower revenue adjustments and bad 
debt expense. When the company has established a track record of improving 
these expenses, increasing our confidence that cash flow will be positive in 
2013, the outlook will be revised to stable. 
 
Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- 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
     -- Standard & Poor's Revises Its Approach To Rating Speculative-Grade 
Credits, May 13, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
 
Ratings List
Ratings Affirmed; Outlook Action
                                           To                 From
Apria Healthcare Group Inc.
 Corporate Credit Rating                   B+/Negative/--     B+/Stable/--

Ratings Affirmed

Apria Healthcare Group Inc.
 $700M 11.25% sr secd A-1 notes due 2014   BB                 
   Recovery Rating                         1
 $317.5M 12.375% sr secd notes due 2014    B                  
   Recovery Rating                         5

我们的标准:汤森路透“信任原则”
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