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Global Credit Research - 17 Apr 2012
New York, April 17, 2012 -- With upgrades matching downgrades in the first quarter of this year,
negative credit conditions are likely to persist for US not-for-profit
hospitals, says Moody's Investors Service in its quarterly
ratings report for the sector.
Rating activity for the sector in the first quarter saw 11 upgrades and
11 downgrades for an equal ratio of 1.0 to 1. However,
the dollar amount of upgraded debt, $2.75 billion,
exceeded the dollar amount of downgraded debt, $1.44
billion, for a ratio of 1.91 to 1, reflecting the fact
that many of the upgraded providers are larger systems with greater debt
capacity. Smaller providers are at a disadvantage relative to their
larger peers, triggering at least as many downgrades but affecting
smaller debt issuances.
"While downgrades and upgrades were on par with each other during
the first quarter, we expect downgrades to eventually outpace upgrades
by the end of the year," said Associate Analyst Carrie Sheffield,
author of the report. "This assumption reflects the pressures
facing the not-for-profit healthcare sector and the fact
that the majority of hospital ratings under review are tending toward
downgrade."
Moody's affirmed 66 ratings in the quarter, representing 75%
of all rating activity and affecting approximately $28 billion
of debt, which is consistent with the longstanding historical trend
of affirmations far exceeding rating changes.
"Upgrades in the first quarter were largely due to improved financial
performance and better balance sheet metrics as some areas of the US show
economic improvement and volumes stabilized or showed growth,"
said Sheffield. "Downgrades continued in service areas hit
hardest by the recession, many of them experiencing reduced or unfavorable
reimbursements from government and commercial payers, volume declines,
and management and governance problems."
Moody's found that rating downgrades were more pronounced than upgrades
as providers were downgraded an average of 1.55 notches compared
to upgrades averaging 1.09 notches. Three of the 11 downgrades
were downgraded three notches each, indicating more intense rating
pressure in the negative direction.
"Because upgrades have been driven largely by short-term
increases in government payments through state provider tax programs and
savings achieved by mergers or affiliation synergies, it is clear
there are still fundamental weaknesses in the sector that are likely to
persist over the longer-term," Sheffield said.
As of March 31, five ratings were under review, four for possible
downgrade and one for possible upgrade. The amount of debt on review
for downgrade, $604 million, is far greater than the
debt on review for upgrade, $45 million.
The report, "U.S. Not-For-Profit
Healthcare Quarterly Ratings: Upgrades Match Downgrades in First
Quarter 2012," is available at moodys.com.
* * * * *
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Carrie Sheffield
Associate Analyst
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New York, NY 10007
U.S.A.
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MD - Public Finance
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Moody's: Q1 rating changes show negative conditions for US not-for-profit healthcare
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