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Moody's cuts Community Health Systems' corporate family rating

Moody's downgraded Community Health Systems Inc.'s corporate family rating to Caa1 from B3 and probability of default rating to Caa1-PD from B3-PD.

The outlook on the ratings is stable.

Moody's said the downgrade of the corporate family rating is driven by material erosion in financial performance over the last 6 months and a lower earnings and cash flow outlook for 2018.

The rating agency expects adjusted debt/EBITDA to remain above 7.5x over the next 12 months to 18 months, with interest coverage of about 1.0x and no material free cash flow. It added that these credit metrics no longer support the B3 rating.

Jessica Gladstone, senior vice president with Moody's, said the industrywide operating environment will continue to challenge earnings growth even though Community Health has ongoing initiatives to improve financial performance.

She believes divestitures will result in debt repayment and a smaller, more focused company but the divestiture program will keep consuming significant company resources and the company's cost structure has not yet adjusted to the significantly smaller revenue base, leading to material margin erosion over the past few years.