Moody's cuts ERC Finance

Moody's Investors Service said it downgraded the ratings of ERC Finance, LLC, the parent company of Eating Recovery Center, LLC, including the corporate family rating to Caa1 from B3, the probability of default rating to Caa1-PD from B3-PD and the senior secured first-lien credit facility ratings to B3 from B2. The outlook was changed to stable from negative.

"The downgrades reflect Moody's expectation that ERC will remain free cash flow negative over the next 12-18 months, resulting in weak liquidity and the likely need to increase debt to fund the company's facility expansions and upgrades," said Vladimir Ronin, Moody's lead analyst for ERC, in a press release. "In addition, the aggressive growth in bed adds further execution risk," added Ronin.

The stable outlook reflects Moody's expectation the company's strategy will result in meaningful earnings growth, but that leverage will remain high given that the company will likely continue to increase debt to fund its expansion strategy.

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