Downgraded Non-Profit Health Care Debt Tops Upgrades

In the second quarter of 2012, Moody’s announced more downgrades of non-profit health care debt than upgrades. The credit ratings service downgraded $2.78 while upgrading only $2.11 billion.

Moody’s Investors Service released this information in its new report, “U.S. Not-For-Profit Healthcare Quarterly Ratings: Downgraded Debt Trumps Upgraded Debt in Second Quarter 2012, Reversing Prior Trends." In the last three years upgrades exceeded downgrades in eight of the last 13 quarters. Many of the upgrades were for larger systems that carry more debt than smaller providers.

"The increased proportion of downgrades were driven by the continued slow economic recovery, increasing pressure on state budgets, and a large and growing federal deficit," Moody's Associate Analyst Carrie Sheffield, author of the report, said in a statement. "The deficit problem may lead to reductions in Medicare and Medicaid, which translate into weak volumes and revenue declines for hospitals."

The service downgraded 12 hospitals while upgrading only nine. According to the report, that ratio of 1.33 to 1 is keeping with the negative conditions faced by the sector.

"Also, the majority of hospital ratings now under review are being considered for possible downgrade," Sheffield said. "We believe that downgrades will continue to outpace upgrades with upgrades due primarily to strong management, increased revenues from state provider taxes, and mergers."

In the first quarter of the year, the numbers were more evenly mixed with 11 upgrades and 11 downgrades. As a result, during the first half of the year, Moody’s downgraded 23 and upgraded 20. However, upgraded debt was greater than downgraded debt, $4.86 billion to $4.22 billion.

"While downgrades and upgrades were on par with each other during the first quarter, we expect downgrades to eventually outpace upgrades by the end of the year," Sheffield had predicted in the report from the first quarter.

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