Rating Action: Moody's downgrades Valitas Health Services' (owner of Corizon) CFR to Caa3 from Caa1; outlook negative Global Credit Research - 15 Oct 2015 Approximately $360 million of rated debt securities affected New York, October 15, 2015 -- Moody's Investors Service downgraded Valitas Health Services, Inc.'s ("Valitas") Corporate Family Rating to Caa3 from Caa1, its Probability of Default Rating to Caa3-PD from Caa1-PD, and its senior secured bank credit facility ratings to Caa2 from B3. The rating outlook remains negative. The rating action reflects Moody's concerns regarding the company's weak liquidity profile, including minimal cushion under the company's financial covenants due to earnings volatility and approaching step-downs. As a result, Moody's expects that a waiver or an amendment will be required over the near-term. The company's weak liquidity profile also reflects approaching debt maturities, including the company's revolver expiration in June 2016 and term loan maturing in June 2017. The downgrade also reflects uncertainty related to the company's Florida contract, the company's largest customer, as the state announced its plan to place its healthcare services contract up for re-bid by the end of 2015. Following is a summary of Moody's rating actions: Ratings downgraded: Valitas Health Services, Inc. Corporate Family Rating to Caa3 from Caa1 Probability of Default Rating to Caa3-PD from Caa1-PD Senior secured first lien credit facilities, to Caa2 (LGD 3) from B3 (LGD 3) The rating outlook is negative. RATINGS RATIONALE Valitas' Caa3 Corporate Family Rating reflects the company's high financial leverage, limited earnings visibility due to risks associated with the volatility of contracts, and margin compression due to competitive pricing pressure on renewed contracts. The credit profile is also constrained by the company's limited free cash flow generation, considerable earnings concentration among top customers, and weak liquidity profile due to minimal covenant cushion and approaching debt maturities. The ratings are supported by Valitas' solid scale and market position as the largest provider of healthcare services to correctional facilities in a highly fragmented sector, and enhanced focus on operational efficiencies which we expect will support earnings and cash flow over the next 12 to 18 months. The negative rating outlook reflects our expectation that credit metrics will remain weak due to the challenging competitive environment, uncertainties related to the company's largest contract, and a weak liquidity profile with approaching debt maturities. In addition, we believe that Valitas will need to obtain a waiver or amendment to its credit agreement over the near-term if the company is unable to remain in compliance with financial covenants. The ratings could be upgraded if the company significantly improves its liquidity profile, including greater certainty regarding the company's ability to comply with financial covenants and an extension of near-term debt maturities. An upgrade would also require adjusted debt to EBITDA sustained below 7 times. In addition, an upgrade would require greater clarity around the status of the company's Florida contract. The ratings could be downgraded if operating performance deteriorates, or if it appears likely that the company will breach a covenant and be unable to obtain a waiver, or if its liquidity for any other reason weakens. The ratings could also be downgraded if the company experiences a loss of key DOC contract. The principal methodology used in these ratings was Business and Consumer Service Industry published December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. Headquartered in Brentwood, Tennessee, Valitas Health Services, Inc., ("Valitas") through its primary operating subsidiary, Corizon Health, Inc. ("Corizon"), is a leading provider of contract healthcare services to correctional facilities owned or operated by state and local governments in United States. Valitas is majority owned by Beecken Petty O'Keefe & Company, a Chicago based private equity management firm. For the twelve months ended June 30, 2015, Valitas generated revenue of approximately $1.4 billion. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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