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Analysis

Healthcare Sector Sees Credit Stress Rise, Moody's Says

By Jack O'Brien  
   March 09, 2020

The ratings agency added that the healthcare sector is more inflexible than other sectors as it relates to "social risks."

The debt held by healthcare companies on Moody's Investors Service's B3 Negative and Lower Corporate Ratings List increased by 28% in 2019, according a report released Monday.

Of the nearly $42 billion in debt held by these lower-rated healthcare companies, $10.8 billion is due between 2020 to 2022. The report specifically cited Community Health Systems (CHS), Mallinckrodt Plc, and Team Health as the companies which comprise over half of the debt held by lower-rated healthcare companies.

The report was released less than a week after the federal government sued Mallinckrodt for defrauding Medicaid.

Related: CHS Launches $1B Debt Tender Offer, Estimates Operating Revenues Slid in Q4

The ratings agency added that the healthcare sector is more inflexible than other sectors as it relates to "social risks," such as litigations or pending policy proposals.

Moody's stated that drugmakers and providers face the highest social risks among healthcare companies, followed by medical device markers.

"The healthcare sector has historically been a defensive sector for credit investors," Scott Tuhy, senior vice president at Moody's, said in a statement. "But over the past year, healthcare credit quality has shown signs of weakening, with the number of healthcare firms on our B3 Negative and Lower Ratings List rising to 28 in February from 21 at the beginning of 2019."

Related: Revenue Growth Raises Nonprofit Provider Outlook for 2020, Moody's Says

Moody's pointed to the increase in downgrades for healthcare companies, 32 in 2019 compared to 18 in 2018, as a result of "poor execution, including weak integration of acquisitions."

The ratings agency also stated that eight healthcare companies defaulted last year and that as of February, 22 companies have a rating of Caa1-PD or lower, which puts them at greater risk of default.

Related: Coronavirus Could Disrupt U.S. Medical Supply Lines

Related: Stocks Crater as COVID-19 Fears Continue; Trading Briefly Halted

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: New York, NY/USA-May 3, 2019: Red light is reflected in the stainless steel facade of 7 World Trade Center and the Moody's Investor Services sign. / Editorial credit: Daniel J. Macy / Shutterstock.com


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