Both Moody's Investors Service and Standard & Poor's Corp. last week placed Continental Medical Systems' $350 million of subordinated debt, currently rated B1 and B+ respectively, under review for possible downgrade, prompting a revision of business plans at the rehabilitation company.
The credit-rating agencies said the reviews were prompted by the Mechanicsburg, Pa.-based company's lower-than-anticipated operating results for the third quarter ended March 31.
For the three-month period, CMS reported earnings of $4.2 million, or 11 cents per share, a 46% decline from the previous year's net income of $7.8 million, or 25 cents per share. Revenues rose 8.9% to $252.9 million. The results reflect the weakening performance of the company's rehabilitation hospitals and a decline of profitability in its respiratory services business, both credit-rating agencies said.
However, Moody's noted that CMS' broad business portfolio of rehabilitation hospitals, outpatient clinics, contract therapy services and temporary physician placement business should offset weakness in any one division.
R.A. Ortenzio, CMS chairman and chief executive officer, said in a prepared statement that the company is refining its business plan, which is scheduled to be completed and announced by the end of the fourth quarter and fiscal year ending June 30.