Fitch lifts DaVita outlook to positive

Fitch Ratings said it revised the outlook for DaVita Inc. to positive from stable and affirmed the company's issuer default rating at B+, bank credit facility at BB/RR2, senior subordinated notes at B-/RR6 and senior unsecured notes at B/RR5.

The positive outlook reflects DaVita's improved credit and operating statistics and Fitch's expectation that leverage will continue to decline in 2007. During 2006, the total debt-to-EBITDA ratio decreased to 4x from 6.85x at the end of 2005, driven by a decrease in debt to $3.8 billion from $4.2 billion and an increase in EBITDA to $937 million from $607 million.

The company also made several changes to its capital structure in the first quarter of 2007: it reduced amounts outstanding on its term loan B with the proceeds from a $400 million issuance of 6 5/8% senior unsecured notes due 2013, pricing on the term loan B was reduced by 50 basis points to Libor plus 150 basis point, several covenants were relaxed and the accordion was increased to $750 million from $500 million.

The agency said that although credit metrics are improving, the company still has significant leverage and is facing some uncertainty surrounding its earnings from physician-prescribed pharmaceuticals, particularly Epogen, which represented 25% of total dialysis revenues in 2006. In addition, the company's narrow focus and concentration of revenues from Medicare make it susceptible to regulatory changes, Fitch said.

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