Moody's downgraded Quality Care Properties Inc.'s ratings, placing them on review for a further downgrade.
Moody's attributed the move to the worsening creditworthiness of HCR ManorCare, the tenant and operator of "substantially" all of the company's properties, contributing 94% of Quality Care Properties' total revenue as at end-March. The operator violated its forbearance agreement and defaulted on its June rent payment.
The rating agency downgraded the company's corporate family rating to B3 from B2, first-lien term loan rating to B3 from B2, first-lien credit facility rating to B3 from B2 and second-lien note rating to Caa1 from B3.
The rating agency cited the company's reliance on HCR, exposure to the heavily regulated skilled nursing segment and a negligible unencumbered asset pool, as reasons for the B3 corporate family rating.
According to a note, Moody's anticipates sustained disruptions in cash flows from HCR will lead to "material deterioration" in the company's operating profits and liquidity position in the next 12 to 18 months.
Furthermore, the rating agency noted that the ratings review will focus on the company's strategic direction, its capability to reach an out-of-court lease restructuring with HCR, and the impact of the move on its cash flows and HCR's EBITDAR coverage.