DBRS Maintains Under Review with Negative Implications Status on Centric Health

DBRS has today maintained the Under Review with Negative Implications status on the ratings of Centric Health Corporation (Centric or the Company) following the Company’s announcement that it has entered into a definitive agreement to sell its MEDIchair and Motion Specialties retail home medical operations to Canadian-based Birch Hill Equity Partners for $50 million.

On March 24, 2014, DBRS placed the ratings of Centric Under Review with Negative Implications following the Company’s announcement that it had entered into a definitive agreement to sell 100% of the common shares of its Home Care business, Community Advantage Rehabilitation, Inc. (CAR), and that it was pursuing the sale of its Senior Wellness operations. Centric announced that it had completed the sale of its Home Care business and Senior Wellness operations on May 9, 2014, for aggregate proceeds of $14.5 million. The purchase price for each transaction was satisfied by the issuance of an eight-year secured promissory note bearing interest at 7%, payable monthly.

On November 29, 2013, DBRS confirmed the Issuer Rating and Senior Secured 2nd Lien Notes rating of Centric at B (high) and changed the trends to Negative from Stable. The rating action reflected DBRS’s concern that weaker-than-expected operating performance through Q3 2013 could result in the Company’s credit risk profile weakening beyond a level considered consistent with the B (high) rating category. DBRS also noted that performance would be further challenged by Government of Ontario changes to the Ontario Health Insurance Plan funding model for publicly-funded physiotherapy in long-term care and retirement homes. DBRS notes that the potential for further challenges in this area has been mitigated by the Company’s recent sale of its Senior Wellness business.

The Company announced today that it is divesting its MEDIchair and Motion Specialties operations to refocus on the Company’s core strengths as a health care services provider. Proceeds from the sale are expected to be used to invest in new high-margin opportunities consistent with the Company’s focus as a health care services provider and to provide additional flexibility for debt repayment.

The Under Review with Negative Implications status continues to reflect the uncertainty surrounding the use of proceeds.

In its review, DBRS will focus on (1) the impact from the Company’s recent divestitures on the Company’s business risk profile; (2) the use of proceeds from the sale of MEDIchair and Motion Specialties (investment in growth and/or debt repayment) and its impact on the Company’s financial and business risk profile; and (3) the Company’s longer-term business strategy and financial management intentions.

DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status as soon as practical.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Services Industry, Rating Companies in the Merchandising Industry and DBRS Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on our website under Methodologies.