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Rating Action:

Moody's Assigns Ba3 to CHS/Community's Notes Offering

Global Credit Research - 07 Mar 2017

New York, March 07, 2017 -- Moody's Investors Service, ("Moody's") assigned a Ba3 rating to the proposed notes offering of CHS/Community Health Systems, Inc. Proceeds from the proposed $1.75 billion senior secured notes offering will be used to refinance upcoming maturities of senior secured debt. The offering will not materially change leverage or result in a material change in the company's ratio of secured to unsecured debt. There are no other changes to ratings, including the B2 Corporate Family Rating or Probability of Default Rating of B2-PD. The Ba3 ratings on the company's existing senior secured debt and Caa1 ratings on its unsecured notes are also unchanged. The outlook is negative and the Speculative Grade Liquidity rating remains SGL-3 (signifying adequate liquidity).

Ratings assigned:

Senior secured notes at Ba3 (LGD 2)

RATINGS RATIONALE

Community's B2 Corporate Family Rating reflects Moody's expectation that the company will continue to operate with very high financial leverage over the next 12 to 18. While planned asset sales will allow the company to repay debt, Moody's anticipates that deleveraging will be constrained by continuing operating headwinds, including weak admission trends. Supporting the rating is Community's large scale and strong market presence. Scale remains significant even after the spin-off of operations into Quorum Health Corporation and other planned divestitures.

The successful execution of the contemplated refinancing transaction will address near-term maturities, improving liquidity. Further, the recent credit agreement amendment temporarily provides the company with additional covenant cushion. The liquidity rating of SGL-3 continues to be constrained, however, by the expiration of a portion of the company's accounts receivables facility in November 2017 ($250 million), relatively high required debt amortization over the next 12 months, modest free cash flow and the expectation that covenant cushion will decline in early 2018 once the covenants step-down again. Also, over the next year, Community will need to further address the maturity of its Term Loan A (January 2019) and the expiration of its revolver (January 2019).

The negative rating outlook reflects Moody's expectation that difficulties in improving operating results will result in debt to EBITDA remaining well above 6.0 times.

If the company's liquidity weakens, either because of operational shortfalls or adverse developments related to ongoing investigations, or if compliance with covenants becomes less certain, Moody's could downgrade the ratings. Further, if the company fails to address refinancing needs well in advance of upcoming maturities, the ratings could be downgraded. Ratings could also be downgraded if there is further earnings deterioration, or if Moody's does not expect Community's debt to EBITDA to decline closer to 6.0 times.

Moody's could upgrade the ratings if operational initiatives result in volume growth that remains on par with the peer group. Community will also have to strengthen its liquidity and reduce and sustain debt to EBITDA below 5.0 times prior to a ratings upgrade. Finally, Moody's would have to gain additional certainty around the path the company is pursuing with respect to its review of strategic options.

CHS/Community Health Services, Inc., headquartered in Franklin, Tennessee, is an operator of general acute care hospitals in non-urban and mid-sized markets throughout the US. Community recognized approximately $18.4 billion in revenue for the twelve months ended December 31, 2016.

The principal methodology used in this rating was that for Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jessica Gladstone
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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