OREANDA-NEWS. S&P Global Ratings today assigned its 'B-' issue-level rating to Kinetic Concepts Inc.'s proposed issuance of $1,750 million of five-year senior secured second-lien notes to repay existing $1,750 million senior secured second-lien notes due 2018. KCI USA Inc. is a co-issuer of the notes. We assigned a recovery rating of '5' to these notes, reflecting our expectation for modest (10%-30%, lower half of the range) recovery on these obligations in the event of a default.

Additionally, the company is refinancing $450 million of its $612 million senior unsecured notes due 2019 with new senior secured third-lien notes maturing 2021. The third lien is supported by a limited collateral package that limits its maximum recovery from collateral in default to $150 million, thereby limiting the benefits of collateral. We are assigning an issue-level rating of 'CCC+' and a recovery rating of '6' to the third-lien notes, which reflects our expectation for a negligible (0%-10%) recovery on these obligations in the event of a default.

Our 'B' corporate credit rating on Kinetic Concepts reflects our assessment of the company's business risk as fair and the financial risk profile as highly leveraged. The outlook is stable.

The assessment of a fair business risk profile reflects significant product concentration (negative pressure wound therapy-based VAC devices account for about two-thirds of revenues), pricing pressure within its advanced wound therapeutics product categories following the expiration of Kinetic's patent on negative pressure wound therapy, and the company's limited geographic diversity with roughly 75% of revenues derived in the Americas. Our business risk assessment also incorporates the company's well-entrenched market position and deep organizational experience with VAC devices (about 90% share), attractive EBITDA margins (35%), and the company's wound dressing products and regenerative medicine division which provide modest diversification.

The highly leveraged financial risk profile reflects adjusted debt leverage above 5x. We estimate adjusted debt leverage of about 7.6x for 2016, improving to about 7.4x for 2017. Leverage could improve further if the company proceeds with plans for an IPO.

For the corporate credit rating analysis, see the summary analysis on Kinetic Concepts published on June 3, 2016.