Moody’s Downgrades $650 Million of Apria Debt

Moody’s Investors Service downgraded $650 million worth of Apria Healthcare Group’s long-term borrowings Tuesday, a move that may make it more costly for the troubled home-health-care giant to restructure its finances.

The big New York credit-rating agency expressed concern about Apria’s ability to collect from its customers, a problem that has plagued the company since it was formed nearly three years ago by the merger of Abbey Healthcare Group Inc. and Homedco Group Inc.

Moody’s noted that Apria’s $238-million fourth-quarter loss reflected “continued deterioration” in the company’s operating results and financial condition. It also questioned whether lawsuits against the company will distract management from the challenges of integrating the merged companies’ systems.

Sheree Aronson, Apria’s director of investor relations, said Tuesday that the downgrade could increase the costs of new financings if the company chooses to issue more debt or equity. But she said the rating shouldn’t affect the company’s ability to restructure its bank debt. The company has borrowed $340 million against a $450-million bank credit line and is trying to restructure terms.

Apria was hit with a second shareholder lawsuit last week, alleging that company officials fraudulently claimed the merged companies benefited from cost savings, economies of scale and efficiencies in their field operations. The suit, filed in federal district court in Los Angeles, seeks class-action status on behalf of investors who purchased April shares from March 2, 1995, to Jan. 20 this year.

Shareholders say that while the company’s problems remained concealed from the public, insiders engaged in the illegal sale of company stock, which resulted in combined proceeds of about $14 million.

Aronson said Apria intends to vigorously defend itself against the lawsuit.

Specifically, Moody’s pared its rating on $200 million in secured notes due in 2002 to B3, from B2, and lowered the rating on a $450-million credit line due in 2001 to B1, from Ba3.

It said the ratings remain under review, and could be downgraded further.