As the U.S. not-for-profit healthcare sector faces a barrage of incremental operational and financial pressures, credit quality is beginning to deteriorate and negatively affect ratings, even as many of the larger systems and well-positioned, stand-alone providers perform very well, according to a report published Feb. 14 by Standard & Poor’s Ratings Services (S&P). Taken together, these two trends herald a return of the credit quality gap that was last prominent in the early part of this decade.
“We expect this trend to continue, with downgrades exceeding upgrades in 2008, and possibly more so in 2009 and beyond as the sector heads into a period of greater uncertainty,” said S&P’s credit analyst Martin Arrick. “Furthermore, we believe that providers’ ability to invest sufficiently in capital, while maintaining at least an adequate financial profile, will be a key differentiator over the next several years that will cause the credit quality gap to continue to widen.”
Overall, S&P’s outlook remains mixed for the sector, according to the report, U.S. Not-for-Profit Health Care Shows Stress as Credit Quality Gap Returns. Contributing factors to the increase in lowered ratings include margin compression, weakening balance sheets, and rising competition from traditional and nontraditional sources. In the second half of 2007, the number of lowered ratings (28) was more than double the number of raised ratings (13). S&P has more than 600 acute care hospitals and health systems in its rated universe.
The report is available to subscribers of RatingsDirect. For more information, call 212-438-9823.
