S&P Global Ratings downgraded Quality Care Properties Inc.'s corporate credit rating to B- from B.
In addition, the rating agency lowered the issue-level rating on the company's $1 billion first lien loan to B+ from BB-, while downgrading the second-lien issue-level rating to B from B+.
All the ratings remain on CreditWatch with negative implications.
The downgrade echoes the company's limited cushion under its present covenants and a high likelihood of breaching its debt service coverage covenant as early as March 2018 without an amendment to its credit facilities or waiver of the covenants by lenders.
According to a note, Quality Care is facing increasing pressure due to its primary tenant, HCR ManorCare, paying substantially reduced rent under its lease agreement over the past few quarters.
In addition, the company has failed to demonstrate any progress in gaining an amendment or waiver, or toward significant asset sales, which S&P views as unfavorable in terms of financial strategy.
S&P projects that the company could receive $18 million per month from HCR, which would likely result in the breach of its debt service coverage ratio covenant of 1.75x in the first quarter of 2018. Furthermore, the rating agency noted that the downgrade also mirrors the uncertainty surrounding a potential HCR bankruptcy.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.