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Apria Healthcare's Credit Profile Downgraded

Investment: Standard & Poor's cites negative outlook for the Costa Mesa-based health care provider.


Struggling Apria Healthcare Group Inc. received more bad news Tuesday when Standard & Poor's said it lowered its ratings on the Costa Mesa company's corporate credit and bank loans.

The New York rating agency said the outlook remains negative for the large provider of home health care services, citing cuts earlier this year in Medicare reimbursements, which account for 30% of Apria's revenue.

The agency downgraded the company's corporate credit and bank loan to "BB-minus" from "BB," underscoring the company as a speculative investment. The rating on other company debt was lowered to "B" from "B-plus."

The lower ratings evidently didn't faze stockholders. Apria's stock rose 13 cents a share Tuesday to close at $4.82 in New York Stock Exchange trading.

Ralph Whitworth, Apria's chairman, said the agency's move "wasn't a great surprise. They are just incorporating recent developments at the company into their analysis--developments which I think the market had already digested."

Last Thursday, the company said it was taking a $160-million third-quarter charge that stemmed from a corporate restructuring announced last summer. The restructuring involved shedding unprofitable businesses, closing branches and laying off employees.

In connection with the charges, the company also announced last week that it plans to raise $50 million by offering stockholders the rights to purchase bonds that can be converted into stock. An analyst said the third-quarter write-off caused the company to violate terms of its major bank-lending agreement, but bankers gave approval on the condition that Apria move to shore up its finances.

In announcing the lower ratings Tuesday, Standard & Poor's noted that the bankers' approvals depend on the completion of the rights sale. It stressed that unless the company obtains bank waivers and expected proceeds from the rights offering, its "credit profile" could be affected further.

To ensure that the rights sale succeeds, Apria said Tuesday that one of its largest investors--Relational Investors LLC--signed an agreement to buy up any unsold rights.

Standard & Poor's also cited pressures on the company to devise a strategic direction for itself as a leader in its industry while managing its costs.

The agency's report recapped problems the company has faced since it was created by the merger three years ago of two former Orange County-based rivals, Abbey Healthcare Group Inc. and Homedco Group Inc.

Still, the agency noted that the company recently "appears to have stabilized" after making deep staff cuts and improving collections of unpaid bills. It added that the company has $100 million in cash on hand that will be used to pay down bank debt and make acquisitions.

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