BY LINDA BENTLEY | JULY 31, 2013
Rural/Metro Corp. on debt watch
‘We are managing through that process in our corporate office. For our field operations and our employees, it’s business as usual’
NEW YORK – Moody’s Investor Services announced last week that Rural/Metro Corporation, which provides emergency and non emergency medical transportation, fire protection, airport fire rescue and home health care services in 21 states and approximately 700 communities in the United States, “elected not to make an interest payment on its senior notes due 2019.”
While the company’s ratings were not immediately impacted, Moody’s said it could change the probability of default rating to “D” or “LD” for either default or limited default, based on what transpires during the 30-day grace period and the resolution of the missed $15.6 million interest payment, which was due on July 15.
Moody’s announced it might also downgrade the corporate family rating and stated, “Any subsequent upgrade would require a meaningful reduction in the company’s debt balances.”
On May 30, 2013 Moody’s downgraded Rural/Metro corporate family and probability of default rating to Caa2 from B3, lowered the senior secured facilities to B3 from B1, and the senior unsecured notes to Caa3 from Caa2, while keeping the ratings outlook negative.
Net revenue for the twelve month period ending March 31, 2013 was approximately $664 million.
Accounts receivable revenue conversion rates for the company declined to $0.33 per $1 for the nine month period ending March 31, 2013, down from $0.40 per $1 in 2012.
Moody’s cites the decline as “a result of increased contractual allowances and uncompensated care due to cash collection and revenue recognition challenges, a shift in the payor mix, and the growing pressures of self-pay accounts.”
The rating affects approximately $737 million of rated debt.
While waiting to see what happens during the 30-day grace period, Moody’s said the company’s ratings already consider their view that Rural/Metro’s creditors may not fully recover the face value of their holdings.
In October 2012 Moody’s downgraded Rural/Metro as it continued its negative ratings outlook.
At the time, Rural/Metro’s accounts receivable revenue conversion rates for the company declined to $0.39 per $1, down from $0.44 per $1 in 2011.
Moody’s stated the negative outlook was a reflection of Rural/Metro’s weak liquidity position with very limited headroom under its financial covenants over the next year.
It said the rating could be downgraded if free cash flow remained negative for more than six months, with its ratings feeling pressure from additional acquisitions in lieu of debt payment, failure to renew contracts and/or a more challenging reimbursement environment.
Ratings could be upgraded if Rural/Metro is able to improve its liquidity profile and operational capabilities.
According to Moody’s, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth and a reduction in adjusted debt-to-EBIDTA to below 5.5 times would be considerations for a ratings upgrade.
Rural/Metro Corp. was purchased in June 2011 by Warburg Pincus LLC for $728 million with $213 million cash and $515 million of debt.
Shortly after the purchase, Rural/Metro incurred an additional $108 million in debt to buy out two regional ambulance operators, which was when Moody’s changed its outlook to negative.
While Rural/Metro is the only emergency transportation service in many rural areas, ambulance operators must provide emergency service whether the patient is insured or not.
High unemployment has been the biggest contributing factor to the increased number of uncompensated trips and decline in accounts receivables.
Rural/Metro was founded in 1948 as a small community fire department. The company expanded to include ambulance services beginning in the 1980s before going public in 1993.
In response to our query, Rural/Metro Senior Vice President of Operations Mark A. Lashley issued the following statement on Tuesday, “We have an exceptional team of ambulance and fire protection service professionals who will continue to provide the exceptional services that our patients and customers have come to recognize. We currently carry a significant amount of debt on our balance sheet and we are taking steps to address that debt to strengthen our organization. As part of strengthening our business, we have exercised a thirty-day grace period on making an interest payment due on July 15. We are managing through that process in our corporate office. For our field operations and our employees, it’s business as usual.”
For those who reside in areas serviced by Rural/Metro, including Cave Creek, where fire protection and ambulance service is provided through voluntary subscriptions, Rural/Metro has made it easier to pay for subscriptions with monthly and quarterly payment options.
Service may be established online or by calling Rural/Metro at 480-627-6200.
Photo by Linda Bentley