Six days after a multi-notch downgrade from S&P, a second credit rating agency, Moody's Investors Service, lowered Toledo, Ohio-based ProMedica Health System's rating several notches to "Baa1" from "A1." The rating action affects $420 million of debt.
The three-notch downgrade is a result of the health operator's acquisition of HCR ManorCare, the nation's second largest provider of post-acute and long-term care. The $4.4 billion acquisition, finalized July 26, was through a joint venture with Welltower, a real estate investment firm. Under the deal, Welltower owns 80 percent of the HCR ManorCare real estate, and ProMedica owns the other 20 percent as well as HCR ManorCare's operating company.
The acquisition weakened ProMedica's balance sheet since it doubled the organization's revenue and debt, creating a high leverage scenario. In addition, the downgrade considers the execution risk associated with restructuring governance, management and operations during a time where the post-acute care and inpatient-care sectors are already facing headwinds.
Further, the rating favorably incorporates the combined organization's large scale, diversified operations and margin improvement.
The outlook is negative, reflecting the significant risks associated with combining HCR's and ProMedica's diversified business models as well as the increased debt burden.