OREANDA-NEWS. S&P Global Ratings today lowered its issue-level rating on Addison, Texas-based Concentra Inc.'s senior secured debt to 'B+' from 'BB-'. At the same time, we revised the recovery rating on the debt to '3' from '2'. The '3' recovery rating indicates expectations of meaningful (50%-70%, at the low end of the range) recovery in the event of a payment default.

The downgrade reflects weakened recovery prospects for first-lien lenders following Concentra's $200 million incremental first-lien debt issuance. We expect the company to use the proceeds to pay down its second-lien debt in full. The proposed capital structure will consist entirely of first-lien debt.

Our corporate credit rating remains 'B+', given the proposed transaction is leverage neutral. Our negative outlook reflects our outlook on parent, Select Medical Corp., and our view that potential credit deterioration at the parent could prompt a downgrade on Concentra.

Concentra's weak business risk profile is characterized by its narrow operating focus in the highly fragmented occupational therapy market, vulnerability to economic cycles and low barriers to entry. We expect leverage to remain below 4.5x in 2016 and 2017 and that the ratio of funds from operations (FFO) to debt will be about 15% for the same periods. These metrics are consistent with an assessment of an aggressive financial risk profile.