Upgraded debt and overall credit upgrades for non-profit hospitals and health systems surpassed downgraded debt and overall downgrades significantly in the third quarter thanks to an active merger and acquisition market, according to a report from Moody's Investors Service.
Overall, upgraded debt totaled $3.2 billion compared with $957.3 million of downgraded debt — a ratio of 3.3 to 1, the highest of any quarter so far this year. In the second quarter, the upgrade-downgrade debt ratio was 0.76 to 1, and in the first quarter, it was 1.91 to 1.
There were 12 total hospital and health system credit upgrades compared with seven downgrades. Half of those upgrades were directly tied to mergers, such as Poudre Valley Health Care in Fort Collins, Colo., merging with the University of Colorado Hospital in Denver to form the University of Colorado Health.
"Half of the third-quarter upgrades were the result of consolidations or favorable lease agreements rather than gradual improvement in fundamental credit quality," said Carrie Sheffield, an associate analyst at Moody's. "The growing trend toward hospital consolidation is positive for the financial health of many hospitals since it generally enables greater operational efficiencies and leverage in negotiations with payors."
During the first three quarters of 2012, there have been 30 downgrades ($5.2 billion in total affected debt) and 33 upgrades ($8.2 billion in total affected debt). If Moody's removed rating actions that involved M&A, there would be only 24 upgrades and 29 downgrades.
Moody's analysts predict the dollar amount of downgraded debt in the fourth quarter report will likely exceed the dollar amount of upgraded debt for all of 2012 because Moody's has already downgraded two of the largest non-profit health systems this quarter — San Francisco-based Dignity Health and Englewood, Colo.-based Catholic Health Initiatives.
Overall, upgraded debt totaled $3.2 billion compared with $957.3 million of downgraded debt — a ratio of 3.3 to 1, the highest of any quarter so far this year. In the second quarter, the upgrade-downgrade debt ratio was 0.76 to 1, and in the first quarter, it was 1.91 to 1.
There were 12 total hospital and health system credit upgrades compared with seven downgrades. Half of those upgrades were directly tied to mergers, such as Poudre Valley Health Care in Fort Collins, Colo., merging with the University of Colorado Hospital in Denver to form the University of Colorado Health.
"Half of the third-quarter upgrades were the result of consolidations or favorable lease agreements rather than gradual improvement in fundamental credit quality," said Carrie Sheffield, an associate analyst at Moody's. "The growing trend toward hospital consolidation is positive for the financial health of many hospitals since it generally enables greater operational efficiencies and leverage in negotiations with payors."
During the first three quarters of 2012, there have been 30 downgrades ($5.2 billion in total affected debt) and 33 upgrades ($8.2 billion in total affected debt). If Moody's removed rating actions that involved M&A, there would be only 24 upgrades and 29 downgrades.
Moody's analysts predict the dollar amount of downgraded debt in the fourth quarter report will likely exceed the dollar amount of upgraded debt for all of 2012 because Moody's has already downgraded two of the largest non-profit health systems this quarter — San Francisco-based Dignity Health and Englewood, Colo.-based Catholic Health Initiatives.
More Articles on Hospital Upgrades and Downgrades:
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Moody's: Hospital Downgrades Surpass Upgrades in 2Q of 2012