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U.S. Not-For-Profit Health Care Rating Actions: September 2021 And Third-Quarter 2021

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ESG In U.S. Public Finance Credit Ratings: 2022 Outlook And 2021 Recap

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U.S. State Ratings And Outlooks: Current List

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History Of U.S. State Ratings


U.S. Not-For-Profit Health Care Rating Actions: September 2021 And Third-Quarter 2021

S&P Global Ratings' not-for-profit health care rating actions for the third quarter of 2021 were equal with seven downgrades and seven upgrades. There were also 14 favorable outlook revisions, mostly to stable from negative, and three unfavorable outlook revisions all to negative from stable. In addition, 78 of our 109 rating actions were affirmations, which further supports our stable sector outlook.

The year-to-date total of 46 favorable outlook revisions is significantly higher than the 13 unfavorable outlook revisions. We believe this trend reflects the strength of the sector as operations continue to normalize, although the sector still has ample headwinds related to staffing shortages, uneven volume recovery, varying vaccination and hospitalization rates, and lower pandemic related government stimulus. Year to date rating downgrades (12) outpace upgrades (eight), reflecting the more negative skew of rating actions in the earlier quarters; for instance, there were no upgrades in the first quarter of 2021 and only one upgrade in the second quarter.

September 2021 Had More Downgrades Than Upgrades, But Outlook Revisions Were Firmly Positive

In September, there were limited rating actions with three downgrades and two upgrades (see table 1). However, we took far more outlook actions with September and third quarter favorable outlook revisions exceeding unfavorable outlook revisions and matching cumulative trends in both the first and second quarters. In September, we affirmed 32 ratings without revising the outlooks, and we assigned new ratings to Magnolia Regional Health Center (MS), SouthEast Alaska Regional Health Consortium (AK), and Adventist HealthCare (MD). Rating actions include:

  • Three downgrades (two downgrades of standalone hospitals and one downgrade of a health system);
  • Two upgrades (one upgrade from the speculative-grade category to investment-grade category and one upgrade from the 'BBB' rating category to the 'A' rating category);
  • Seven favorable outlook revisions (five outlook revisions to stable from negative and two outlook revisions to positive from stable with all but one of the revisions on stand-alone hospitals); and
  • One unfavorable outlook revision (to negative from stable).

In September, we rated 21 new bond issues.

Non-stable outlooks indicate a one-in-three likelihood of a future rating change during the outlook period. We consider a favorable outlook change to include revisions to positive from stable, to stable from negative, or less commonly, to positive from negative, and vice versa for unfavorable outlook changes where the rating itself doesn't change.

Table 1

September 2021 Not-For-Profit Health Care Ratings Actions
State Rating Outlook Action Description
Hospitals

Auxilio Mutuo Hospital

PR BBB+ Stable New sale; rating maintained Credit quality consistent with existing rating

Beverly Community Hospital Association

CA BB Negative Rating maintained Credit quality consistent with existing rating

Boulder Community Health

CO A- Stable Rating maintained; outlook revised from negative Operating trend towards breakeven and improved balance sheet

Casa Colina Centers for Rehabilitation

CA A- Stable Rating raised from 'BBB+'; previous outlook positive Sustained improved operating performance and growth in unrestricted reserves

Children's Hospital Colorado

CO A+ Positive Rating maintained Credit quality consistent with existing rating

Conway Regional Medical Center

AR BBB+ Stable New sale; rating maintained; outlook revised from negative Operations above expectations

Dallas County Hospital District

TX AA- Positive Rating maintained; outlook revised from stable Financial profile improvement and revenue diversity

El Paso County Hospital District

TX BBB+ Stable Rating maintained Credit quality consistent with existing rating

Guthrie Clinic

PA A Stable New sale; rating maintained Credit quality consistent with existing rating

Southeast Health

AL BBB+ Stable Rating maintained Credit quality consistent with existing rating

Jackson-Madison County General Hospital dba West Tennessee Healthcare

TN A- Stable Rating lowered from 'A'; previous outlook stable Weak operating results

Kootenai Health

ID A Stable Rating maintained Credit quality consistent with existing rating

Magnolia Regional Health Center

MS BB Stable New sale; rating initially assigned Rating initially assigned

Methodist Hospital of Southern California

CA BBB+ Stable Rating maintained Credit quality consistent with existing rating

Methodist Hospitals

IN BBB- Stable New sale; rating maintained; outlook revised from negative Expectation of continued profitability

Mohawk Valley Health System

NY BB+ Stable New sale; rating maintained Credit quality consistent with existing rating

Nicholas H. Noyes Memorial Hospital

NY BB- Stable Rating maintained; outlook revised from negative Expectation of continued profitability and improved balance sheet

North Oaks Health System

LA BBB+ Positive New sale; rating raised from 'BB+'; previous outlook positive Multi-year trend of improved operations and balance sheet metrics

Northern Inyo County Local Hospital District

CA B+ Stable Rating maintained; outlook revised from negative Greatly improved operating performance

Oak Valley Hospital District

CA BB Stable Rating maintained Credit quality consistent with existing rating

Orangeburg-Calhoun Counties Regional Medical Center

SC BBB- Negative Rating lowered from 'BBB'; previous outlook stable Consecutive years of negative operating results

Penn Highlands Healthcare

PA A- Negative New sale; rating maintained; outlook revised from stable Financial profile dilution due to acquisition

SouthEast Alaska Regional Health Consortium

AK A- Stable New sale; rating initially assigned Rating initially assigned

UC Health

OH A Negative Rating maintained Credit quality consistent with existing rating

Louisville Medical Center Water & Steam Plant

KY BBB+ Stable Rating maintained Credit quality consistent with existing rating
Health systems

Adventist HealthCare

MD BBB Stable New sale; rating initially assigned Rating initially assigned

Advocate Aurora Health

IL AA Stable Rating maintained Credit quality consistent with existing rating

Catholic Health System

NY BBB Negative Rating maintained Credit quality consistent with existing rating

Centra Health

VA A- Stable New sale; rating maintained Credit quality consistent with existing rating

Circleport Conference Center Landlord LLC

KY AA- Stable Rating maintained Credit quality consistent with existing rating

Deaconess Health System

IN A+ Positive New sale; rating maintained; outlook revised from stable Strong financial metrics

Fairview Health Services

MN A Stable New sale; rating lowered from 'A+'; previous outlook negative Operating losses and expense base pressures

Geisinger Health

PA AA- Stable Rating maintained Credit quality consistent with existing rating

Hartford HealthCare

CT A Stable New sale; rating maintained Credit quality consistent with existing rating

Memorial Hermann Health System

TX A+ Stable Rating maintained Credit quality consistent with existing rating

MultiCare Health System

WA AA- Stable Rating maintained Credit quality consistent with existing rating

Providence St. Joseph Health

WA AA- Stable New sale; rating maintained Credit quality consistent with existing rating

Rush University System for Health

IL A+ Stable Rating maintained Credit quality consistent with existing rating

RWJ Barnabas Health

NJ AA- Stable New sale; rating maintained Credit quality consistent with existing rating

Sentara Healthcare

VA AA Stable New sale; rating maintained Credit quality consistent with existing rating

Scripps Health

CA AA Stable Rating maintained Credit quality consistent with existing rating

Sparrow Health System

MI A Negative Rating maintained Credit quality consistent with existing rating

St. Elizabeth Medical Center

KY AA Stable New sale; rating maintained Credit quality consistent with existing rating

University Hospitals

OH A Stable New sale; rating maintained Credit quality consistent with existing rating
Long term care and human service providers

Brethren Home Community dba Cross Keys Village

PA A- Stable Rating maintained Credit quality consistent with existing rating

Henry County Health Care Authority

AL BB+ Stable Rating maintained Credit quality consistent with existing rating

Kendal at Ithaca

NY BBB+ Stable New sale; rating maintained Credit quality consistent with existing rating

Noland Health Services

AL A Stable New sale; rating maintained Credit quality consistent with existing rating

Third-Quarter Rating Actions

In the third quarter of 2021, we lowered seven ratings and also raised seven ratings (see chart 1). We also affirmed 17 ratings while revising their outlooks favorably (14) and unfavorably (3). Furthermore, we initially assigned eight new ratings during the third quarter to the following issuers:

  • Tucson Medical Center (AZ)
  • Ochsner LSU Health System of Northern Louisiana (LA)
  • Antelope Valley Hospital (CA)
  • AtlantiCare Health System (NJ)
  • St. Lukes Hospital of Duluth (MN)
  • Magnolia Regional Health Center (MS)
  • SouthEast Alaska Regional Health Consortium (AK)
  • Adventist HealthCare (MD)

Chart 1

image

During the third quarter of 2021, upgrades were driven by a fairly even mix of balance sheet and operational performance factors, whereas the downgrades were more skewed toward operational performance weakness (see chart 2). However, we also downgraded a rating in the third quarter due in part to an environmental, social, and governance (ESG) risk factor related to an issuer's location in southwestern Louisiana.

We believe the factors driving the rating changes reflect that while balance sheet metrics have served as a stabilizing factor for many issuers, operating performance has been dissimilar across our portfolio of credit ratings, as certain issuers have been more affected by industry cost pressures and have struggled to find footing during this leg of the pandemic. We continue to believe that as the trend in patient behaviors continues toward a new normalization, enterprise profiles including market share information will further come into focus as the utilization landscape develops.

The most-cited factors driving both favorable and unfavorable outlook revisions during the third quarter were around operational performance and balance-sheet changes, consistent with the prior quarter (see chart 3).

Chart 2

image

Chart 3

image

Rated new sale volume during the third quarter of nearly $9 billion was greater than the second and first quarter rated new sale volume of $8 billion and $6 billion, respectively. New sale issuance during the third quarter was the highest in the southeast region of the United States (see chart 4), and over $6 billion in total new sale issuance was from health systems. We expect that new sale activity will continue to be elevated at least through the current month as providers take advantage of low interest rates.

Chart 4

image

Credit Quality Expectations For The Remainder Of The Year

We have a stable sector outlook on the not-for-profit acute care sector. Our stable sector outlook is supported by broad balance sheet strength of providers due to the provider relief funds and favorable investment returns since market lows at the start of the pandemic in spring 2020. This balance sheet strength should continue to provide a rating cushion to manage through some mixed operational results related to short-term revenue interruptions, potential market volatility, the phase out of stimulus funding, and expense pressures. In particular we believe staffing will be a persistent challenge due to heightened turnover and salary requirements, burnout, retirements, and a generally tight labor market. The sector may also be affected by surges of the coronavirus, interrupting management plans and in some cases crowding out more profitable services, although this risk is dependent on local market conditions including vaccination rates.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Alexander Nolan, Centennial + 1 (303) 721 4501;
alexander.nolan@spglobal.com
Secondary Contacts:Cynthia S Keller, Augusta + 1 (212) 438 2035;
cynthia.keller@spglobal.com
Suzie R Desai, Chicago + 1 (312) 233 7046;
suzie.desai@spglobal.com

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