[0] S&P Lowers Ratings on Omega Healthcare Investors Inc.Business Editors & Health/Medical Writers NEW YORK--(BUSINESS WIRE)--Standard & Poor's July 5, 2000-- Standard & Poor's today lowered its corporate credit rating on Omega Healthcare Investors Inc. to single-'B'-plus from double-'B'-minus. In addition, ratings were lowered on the company's unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. and cumulative preferred stock Cumulative preferred stock Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock. (see list). The ratings remain on CreditWatch with negative implications where they were placed on April 7, 2000. The ratings action anticipates a further decline in coverage measures relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc ongoing operator difficulties and the REIT's significantly higher financing costs. The CreditWatch listing anticipates that upon closing of the Omega's new secured bank facility, unsecured bondholders will be in a structurally subordinate position relative to secured lenders. As a result, it is expected that issue ratings on debt and preferred securities will be lowered further. Ann Arbor Ann Arbor, city (1990 pop. 109,592), seat of Washtenaw co., S Mich., on the Huron River; inc. 1851. It is a research and educational center, with a large number of government and industrial research and development firms, many in high-technology fields such as , Mich.-based Omega is a $1.0 billion REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). that focuses mainly on skilled nursing facilities skilled nursing facility n. Abbr. SNF An establishment that houses chronically ill, usually elderly patients, and provides long-term nursing care, rehabilitation, and other services. . A large majority of Omega's operators continue to experience severe financial difficulties due, in large part, to revised Medicare reimbursement rates. Currently, operators in more than half of the company's investments have filed for bankruptcy protection. Omega's cash flow has been significantly compressed due to the nonpayment of rent and interest by some of these troubled operators, the lower lease and interest payments by those operators that continue to make payments to Omega, and the costs associated with select operating properties that Omega has taken back from operators. Coverage measures of 2.2 times (x) debt service and 1.8x fixed-charge for first quarter 2000, are down substantially from historical levels of more than 3.0 and 2.5 times, respectively. Standard & Poor's expects that these measures will decline further due to both ongoing operator difficulties and the REIT's significantly higher financing costs. Omega has successfully negotiated a new bank facility and a new private preferred equity infusion, which will provide the REIT with liquidity to meet maturing debt obligations. In particular, Omega has $81 million (unrated) unsecured senior notes that come due July 15, 2000 and $48.4 million subordinated convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. that come due Feb. 1, 2001. Both of these new financings, however, are expensive and will negatively impact debt coverage. The new $175 million secured revolver will replace an existing $200 million unsecured revolver ($130 million outstanding) that comes due September 2000. The pricing spread for the new line is could be as high as 325 basis points over LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). or a minimum of 250 basis point based upon a stated leverage calculation. This pricing is up significantly from the 150 basis point spread for the existing facility. In addition, Omega's recently received commitment from Dallas-based Explorer Holdings L.P. to fund an initial $100 million in convertible preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. is priced at a yield equal to the greater of 10% or the yield on the common stock (expected to be about 16%). Standard & Poor's expects that upon closing of the new bank facility, which remains subject to shareholders' approval of the private equity transaction, more than half of the REIT's cash flow will be encumbered Encumbered A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property. by mortgages. As a result, it will be necessary at that time to further lower the ratings for the company's secured lenders and unsecured creditors Unsecured Creditor An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because they have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor. . Standard & Poor's expects to resolve the CreditWatch listing and expected notching of senior notes down to single-'B'-minus following the shareholder vote on July 14, 2000.---CreditWire -0-
OUTSTANDING RATINGS LOWERED AND REMAIN ON CREDITWATCH WITH
NEGATIVE IMPLICATIONS
Omega Healthcare Investors Inc. Rating
To From
Corporate credit rating B+ BB-
$100 million 6.95% senior unsecured
notes due 2007 B+ BB-
$125 million 6.95% senior
unsecured notes due 2002 B+ BB-
$57.5 million 9.25% cumulative
preferred stock series A B- B+
$50 million 8.625% cumulative
preferred stock series B B- B+
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