S&P rates Encore Medical loan B, notes CCC+

Standard & Poor's said it assigned a B corporate credit rating to Encore Medical Corp. S&P also assigned a B rating to the $180 million senior secured credit facility of subsidiary Encore Medical IHC Inc. and assigned a CCC+ rating to the subsidiary's $165 million subordinated note offering.

The outlook is positive.

The proceeds of this transaction and a sale of stock will go toward the purchase of another medical products firm, Empi Corp., for about $317 million. Both Galen Partners and the Carlyle Group will own equity in Encore at the close of the transaction, and about $135 million of debt will be outstanding. (Encore Medical Corp. guarantees the debt at Encore Medical IHC.)

Encore's new secured credit facility consists of a $150 million term loan maturing in 2010 and a $30 million revolving credit facility maturing in 2009. The revolving credit facility should be fully available at the close of the transaction.

S&P said the speculative-grade ratings on Encore reflect its highly leveraged capital structure, as well as the challenges the company will face to integrate the operations of Empi, which is a much larger company. These negative rating factors are partially offset by Encore's strong positions in niche physical therapy and orthopedic rehabilitation equipment markets.

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