Moody’s downgraded radiology vendor Carestream’s credit rating Tuesday, citing “weaker than expected” operating performance following its exit from bankruptcy in September.

The Rochester, New York-based manufacturer first filed for chapter 11 in August 2022, seeking to wipe out $470 million in debt. It announced the completion of the process a month later, emerging with a “strengthened balance sheet and enhanced financial flexibility.”

But analysts are expressing continued concern, given Carestream’s high reliance on film products, which account for the majority of its earnings.

“The company continues to have a leading presence in this market,” Adam Chaim and Ola Hannoun-Costa wrote May 16. “However, Moody's expects that the medical film business will remain in structural decline for the foreseeable future.”

Carestream provides specialized paper to produce images from digital X-rays and printers, along with digital imaging systems. It also has two smaller business lines related to nondestructive testing and contract manufacturing.

Moody’s expects Carestream’s cash flows to remain under pressure during the next year and a half. Its debts were about 3.9x adjusted earnings as of December, and analysts anticipate that leverage will climb to 4x in the next 18 months. Chaim and Hannoun-Costa additionally predicted that liquidity will remain weak, given only slightly positive free cash flow and high internal requirements to support ongoing operations.

The company’s growing presence in digital products produced positive returns throughout the pandemic, the analysis noted. But Carestream’s rating also reflects its “significant foreign exposure,” as about 75% of revenue comes from outside the U.S.

“Visibility into earnings is low due to the potential impact of foreign exchange, the price of key input silver, and potential pricing pressure in one of the company's largest markets,” analysts wrote.

Carestream has access to a $85 million revolving credit line, with an outstanding balance of $25 million as of December. It also has $75 million in cash on its balance sheet, but most of the money is not available to access. That’s because about $60 million is needed to support daily operations, while “additional balances are currently trapped outside of the United States.”

Analysts cautioned that Carestream also faces governance risk, driven by its “aggressive” financial policies.

“Carestream was unable to execute a publicly announced out-of-court recapitalization transaction, and subsequently filed for chapter 11 bankruptcy protection in 2022,” the report noted. “The [credit] score also reflects exposure to social risks, primarily due to ongoing substitution risk from medical film into new technologies.”

The company could still score a credit rating upgrade if it grows earnings, improves market share and bolsters liquidity.

Carestream recorded revenues of about $1.1 billion last year and is owned by “numerous” private equity firms following its bankruptcy exit. A company representative could not immediately provide comment on the ratings action late Wednesday.