Moody's: Nonprofit Healthcare Downgrades Continue to Outpace Upgrades

As yet another indication that 2009 was a horrible year for nearly all aspects of the economy, Moody's Investors Service reported today that the year featured "high downgrade activity" in the not-for-profit healthcare sector.

In fact, Moody's reported 54 downgrades compared to 21 upgrades in 2009, which contrasts to 53 downgrades and 27 upgrades the previous year. In other words, the downgrade-to-upgrade ratio increased from a 2 to 1 ratio in 2008 to a 2.6 to 1 ratio in 2009, said Moody's.

The past two years are part of a four-year trend in which downgrades have exceeded upgrades. Though the past four years have been difficult, they are a far cry from the 4.6 to 1 downgrade-upgrade ratio in 2000. Last year was the highest ratio since 2000, said Moody's.

A positive is that the downgrade activity began to wane in the second half of 2009. The downgrade trend went from 6.8 to 1 in the fourth quarter of 2008 and 4 to 1 in the first half of 2009 to 1.7 to 1 in the second half of 2009.

"Despite operating challenges facing most not-for-profit hospitals and healthcare systems and weakening of credit measures across all major ratios and rating categories, rating affirmations still accounted for nearly 79% of all rating actions, continuing a long-standing historical trend in which affirmations dwarf both downgrades and upgrades," said Moody's Associate Analyst Deepa Patel, author of the report "Moody's Not-For-Profit Healthcare 2009 Year-End Rating Activity."

According to Moody's, the "280 ratings affirmations in 2009 were on $114.5 billion in debt, representing nearly 79% of total rating actions and were on par with 2008 rating affirmations. Eighty, or 29%, of the affirmations were accompanied by outlook changes, 47 in a negative direction, and 33 in a positive direction."

"For the first time in six years, the absolute amount of downgraded debt, $14.8 billion, was greater than the absolute amount of upgraded debt [$8.2 billion] by a ratio of 1.8 to 1," said Patel. "The total downgraded debt measured the highest since 2000, while total upgraded debt measured the lowest in the six years since 2003."

Heading into 2009, six ratings in the not-for-profit healthcare sector were on Moody's Watchlist for possible downgrade and one for possible upgrade, according to Moody's.