Better chain ratings fueling upsurge in their stock prices

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Dan Mendelson, CEO of Avalere Health
Dan Mendelson, CEO of Avalere Health
Six nursing home companies were removed from Standard & Poor's Rating Service downgrade watch last month.
The firm ranked Kindred Healthcare at B+ , and Skilled Healthcare and Sun Healthcare Group both at B. The ratings giant also notably  affirmed its junk-level ratings for Drumm Investors LLC, Genoa Healthcare LLC and HCR Healthcare LLC.

The improved ratings were good news for shareholders, as Kindred, Sun and Skilled all saw their stock prices rise modestly upon announcement of the S&P upgrade. 

Sun also announced in December that it was seeking an amendment to its senior secured credit facility to provide additional financial flexibility. The company will make a voluntary debt pay-down and increase its interest expense in return for greater flexibility. But that wasn't enough to stave off a recommendation from Clinton Group, a major Sun shareholder, to write a letter to the Sun board urging it to consider a sale.

In the Dec. 12 letter, Clinton senior portfolio manager Joseph A. De Perio and CEO George E. Hall said the company is  “more valuable in the hands of a larger industry player that can reduce overhead, lower operating costs and more effectively weather the dynamic regulatory and political environment.”

Sun aside, the outlook for many SNF companies has brightened. Although many facilities are still grappling with the Center for Medicare & Medicaid Services' Oct. 1 rate reduction, it is believed that there won't be additional cuts, said Avalere Health CEO Dan Mendelson.

“The ratings agencies were worried about the [Congressional] ‘super committee' and an unpredictable negative result,” Mendelson told McKnight's. The committee wound up making no recommendations, thereby triggering 2% across-the-board cuts, which providers have had time to compensate for.
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