articles Corporate /en/research-insights/articles/when-the-cycle-turns-rising-leverage-and-disruption-weaken-speculative-grade-health-care-companies content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *

* Required

In This List
S&P Global Ratings

Rising Leverage & Disruption Weaken Health Care Companies

S&P Global

What is the “S” in ESG?

S&P Dow Jones Indices

Exploring the G in ESG: Governance in Greater Detail – Part I

S&P Global

What is the “G” in ESG?

S&P Dow Jones Indices

Exploring the G in ESG: The Relationship Between Good Corporate Governance and Stock Performance – Part 2

Rising Leverage & Disruption Weaken Health Care Companies


- For-profit health care ratings quality has deteriorated since the last downturn, in part because of private equity interest. With the increasing number of small, niche companies with significant leverage, more than 60% of ratings are at or below 'B'.

- The health care industry is increasingly focused on value-based care models and consumerism, leading companies to make significant investments that may take longer to materialize into EBITDA.

- High valuations and aggressive capital structures have burdened the balance sheets of new issuers, leaving little room for error.

- Debt leverage in speculative-grade U.S. health care (excluding not-for-profits) is at a historic high, above the median for U.S. corporates. Meanwhile, coverage ratios have declined, even in a low interest rate environment.

- Funds from operations (FFO) interest coverage has declined to around the corporate median, after being well above that over the prior 10 years.

Mar. 04 2019 — We believe the U.S. for-profit health care sector is more vulnerable in a cyclical downturn than it was in previous recessions. While we continue to view the health care industry overall as a traditionally defensive industry, leverage levels across U.S. corporates have been climbing over the past 10 years, and U.S. for-profit health care industry leverage has been consistently above the corporate average. This is especially true for the speculative-grade health care companies, which have seen median leverage exceed 6x since 2017 compared to 5x for the larger speculative grade-rated corporate universe. This is in part a function of private equity interest in the sector and is apparent in the distribution of ratings, with a significant percentage of new issuers rated in the 'B' category. The record leverage and lower-than-average EBITDA interest-coverage ratio among the speculative-grade health care credits are occurring against a backdrop of a changing landscape in the health care industry, including industry disruption, which is also contributing to deteriorating health care credit quality. We believe these developments make the rising number of low-speculative-grade health care borrowers, as a group, more vulnerable to adverse credit cycle changes than we've previously seen.

Read The Full Article