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Vitalant, AZ Outlook Revised To Negative From Stable On Weakened Operating Results; 'A' Issuer Credit Rating Affirmed

NEW YORK (S&P Global Ratings) Dec. 28, 2018--S&P Global Ratings revised the 
outlook to negative from stable and affirmed its 'A' issuer credit rating 
(ICR) on Vitalant (formerly Blood Systems, Inc.), Ariz. An ICR reflects the 
obligor's general creditworthiness, and an ICR is not specific to a given debt 
issue because it does not consider the security and other credit and legal 
characteristics of a given debt issue. 

"The negative outlook reflects weakened operating results, likely breach of 
debt service covenant requirements although management expects waivers from 
all debt holders, and improvement efforts that will take two to three years to 
materialize," said S&P Global Ratings credit analyst Jessica Goldman. A lower 
rating is precluded due to improved balance-sheet measures following the 
paydown of a line of credit, reducing debt by about $50 million from the 2017 
year-end figures. The balance-sheet position remains sufficient to support 
debt at this time. 

The rating reflects our assessment of Vitalant's:
  • Varied business units with geographical diversification and blood collection centers in 28 states;
  • Healthy resources relative to debt;
  • Relatively low maximum annual debt service (MADS) burden; and
  • Absence of additional debt expected during the operational turnaround efforts.
Partially offsetting credit factors include our opinion of Vitalant's:
  • Low available resources for the rating compared with operating expenses, but good when compared with debt;
  • Single-industry risk as a principal blood collection and distribution business that accounts for the majority of its revenues; and
  • Operating weakness following acquisitions and divestitures and changing industry pressures.
The negative outlook reflects our view of Vitalant's weakened operating 
profile, highlighted by widening deficits, weak debt service coverage, and 
likely covenant violations. 

We would lower the rating if operating performance does not begin to improve 
as projected tracking toward breakeven in 2020, waivers are not received, and 
covenants not renegotiated as expected; or if the balance-sheet position 
weakens from its current level.

A revision to a stable outlook would be predicated on Vitalant's improving the 
operating profile to ensure organizational stability and ability to repay the 
lines and bank-held debt (there is currently no public debt outstanding) while 
also maintaining the balance-sheet profile with ample available resources 
relative to debt.

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