articles Ratings /ratings/en/research/articles/230921-weak-cash-flow-pressures-ratings-for-north-american-speculative-grade-health-care-issuers-12846798 content esgSubNav
In This List

Weak Cash Flow Pressures Ratings For North American Speculative-Grade Health Care Issuers


Corporates: Could Interest Rate And Recession Risks Derail Corporate Credit?


Market Dynamics: How Will The Path Of Interest Rates In 2024 Affect Corporate Borrowing Strategies?


Energy Transition: Can The Shift To Net Zero Accelerate Amid Growing Headwinds?


Artificial Intelligence: What Are The Key Credit Risks And Opportunities Of AI?

Weak Cash Flow Pressures Ratings For North American Speculative-Grade Health Care Issuers

(Editor's Note: In the original version of this article, published earlier today, the Appendix table misstated the debt maturity dates. A corrected version follows. )

Rating Action Trends Through The First Eight Months Of 2023

Health care ratings for the first eight months of 2023 exhibited a continued deterioration in quality, mainly in the low speculative-grade portion of our rated universe, highlighted by a record number of defaults in what has been a traditionally stable sector. Furthermore, the increasingly negative bias (negative outlook or CreditWatch negative listing) indicates that this ratings deterioration will likely continue into 2024. Through August 2023, S&P Global Ratings has taken 40 negative rating actions and seven positive rating actions in the speculative-grade North American for-profit health care sector, extending the ratings deterioration that began in 2022, where we saw 35 negative rating actions and 6 positive ones.

About 26% of speculative-grade North American for-profit health care credits have negative outlooks (versus North America corporates average of below 20%), compared with 7% of positive outlooks, indicating continued challenges for low-rated health care companies into 2024. Inflationary cost pressures, especially labor, will persist longer term, weighing on EBITDA margins, combining with heightened interest expense to reduce free cash flows. While liquidity may be adequate for most companies, maturities in 2025-2026 loom and will likely be refinanced at higher rates, which will further pressure free cash flows. We expect continued deterioration in credit quality, particularly in the 'B' (54% of the portfolio) and 'CCC' (14%) categories, especially as 2025 and 2026 maturities come into view, and companies' ability to refinance and the impact on cash flow due to interest rate increases become larger concerns.


Of the 47 rating actions taken on North American speculative-grade health care companies in the first eight months of the year (excluding emergences from 'D' and 'SD'), 40 of them were downgrades. Nine of those reports cited higher interest expense as a main reason for the downgrade, nine cited elevated labor costs as a main cause, and five cited both these pressures, which are --the two most common causes of lowered ratings. Ten downgrades cited upcoming debt maturities and refinancing risks while nine cited constrained liquidity, two causes we usually view as secondary to other primary pressures.


Refinancing Risk Remains A Concern For Weaker Issuers

As the environment for securing new capital remains constrained, upcoming capital needs become a greater focus. While many issuers had taken advantage of the low interest rate environment over the last few years to refinance and push off maturities, 2025 maturities are becoming a concern from a ratings perspective. Speculative-grade health care companies will need to rely on capital markets access to meet upcoming maturities and potentially use new debt issuance to cover capital expenditure (capex) and permanent working capital. Banks tightening lending standards will make it more difficult and costly for entities to secure funding. With that, sufficiency of cash flow, particularly for very-low-quality borrowers with floating debt and exposure to rising interest rates, becomes essential to allow for capital market access. (For a list of upcoming debt maturities, see Appendix.)

Chart 2


Defaults are up, and we expect them to remain elevated as companies address maturities.  Corporate health care saw 12 defaults year-to-date (YTD) in 2023 (from eight individual companies) after experiencing six defaults in 2022--an already elevated number for an industry that is considered relatively stable in terms of demand. While the defaults were caused by different reasons, including changing end-market dynamics or deteriorating competitive positions combined with a highly leveraged capital structure, the current pressures on margins and climbing interest rates hitting a group of companies that have highly leveraged capital structures could lead to more defaults in 2023 and 2024.

Table 2

Summary of defaults
North American health care
Company Issuer Credit Rating Date Notes

Mallinckrodt plc

D Aug 29 Filed for chapter 11 bankruptcy

U.S. Renal Care Inc.

D Jul 28 Distressed exchange

Mallinckrodt plc

SD Jul 18 Nonpayment of interest

LifeScan Global Corp.

SD May 22 Distressed exchange

Envision Healthcare Corp.*

D May 16 Filed for chapter 11 bankruptcy

Lannett Co. Inc.

D Apr 24 Nonpayment of interest

Lannett Co. Inc.

SD Apr 06 Nonpayment of interest

Mallinckrodt plc

SD Mar 16 Debt repurchases at below par

Mallinckrodt PLC

SD Mar 16 Debt repurchases at below par

Community Health Systems Inc.

SD Mar 02 Repurchases at below par

Akorn Operating Co. LLC

D Mar 01 Filed for chapter 7 bankruptcy

Bausch Health Cos. Inc.

SD Feb 24 Debt repurchases at below par
*Subsidiary AmSurg LLC lowered to 'D' as well. Source: S&P Global Ratings.

Key Credit Considerations For The Remainder Of 2023 And 2024

Delayed demand makes a comeback

Beginning in 2023, patient volumes have largely recovered from the pandemic, and we believe that demand will remain solid in the near term, with patients seeking care deferred during the pandemic, more seniors becoming more comfortable accessing services they may have pushed off, and the reversal of the 2022 trend of health systems turning away patients due to severe staffing shortages. For most providers, demand and volume growth for the first half of 2023 remained strong, contributing to strong topline growth.

On a like-for-like basis, hospital admissions increased in the first half of 2023, primarily due to emergency room (ER) visits and outpatient surgeries, supported by acuity growth. We expect the long-term trend to stabilize at a level lower than the first half of 2023. ER visits are high-intensity, high-cost sites of care, causing payors to more aggressively limit the utilization and reimbursement for ER visits.

However, hospitals and health systems have been seeing an acceleration of the shift from inpatient to outpatient care settings (largely among lower-acuity patients) since the onset of pandemic. The increasing use of retail clinics, urgent care centers, and ambulatory surgery centers, as well as technology advances in virtual medicine and telehealth, have led to significant savings for patients and payors when compared with similar services performed in hospitals. Volumes at these lower-cost alternative care sites have increased for certain procedures leading to a decrease in ER and inpatient visits. Joint replacements have led the migration; according to HCA Healthcare CFO William Rutherford, pre-COVID, 75% were done in an inpatient setting; post-COVID, 75% are done in an outpatient setting, though other service lines are not likely to move as quickly. We expect ER visits will decline while outpatient volume growth will remain solid for the next several years.

The behavioral health industry is experiencing increased demand for mental health services as a tailwind of the pandemic. A 2021 study by the National Institute of Mental Health estimated that one in five American adults is living with some type of mental illness, seeking treatment for depression, anxiety, or substance use. We believe demand for services will remain strong at least for the next several years, partly due to expanded coverage through the Mental Health Parity and Addiction Equity Act, increased funding to combat opioid and other substance addiction, societal events like the pandemic, and heightened awareness of substance abuse and mental illness lessening the stigma around mental health care in the recent years. Increased societal acceptance of the need for behavioral health services has also contributed to higher demand as well as influenced better reimbursement rates. Larger behavioral health companies like Universal Health Services Inc. (BB+/Stable), Acadia Healthcare Co. Inc. (BB-/Stable), Summit Behavioral Healthcare LLC (B-/Stable) are strongly focused on increasing their capacity by adding beds to existing or new facilities to meet the demand, and we expect they will benefit from these secular trends.

Staff shortages continue to pressure margins

Despite strong volume growth and positive demand trends for health care providers, expenses including both labor and nonlabor, while moderating, will remain elevated and continue to pressure margins. In 2022, providers were forced to utilize a high level of expensive contract labor to address the workforce disruption. Nurse departures constrained capacity, leaving hospitals short-staffed, causing providers to turn away patients, creating bottlenecks for care. With higher labor costs hampering margins, providers have taken various initiatives, including creating their own internal staffing agencies, hiring more permanent staff, workforce diversification, and partnering with nursing schools to help reduce temporary labor usage and normalize premium labor costs.

Additionally, with travel nurse rates coming down by at least 35% from their peak pricing in 2022, nurses that took traveler assignments during COVID have been returning to permanent positions, alleviating provider capacity constraints. Hospitals have also seen steadily increasing job growth since the pandemic, which also points toward an improving labor environment in the first half of 2023. Since January 2021, the openings and hires ratio for health care staff continues to be above 2.0x, indicating continued demand for health care staff (see Chart 3).

However, labor costs--higher salary for permanent staff and premium pay costs for temporary and travel staff--will remain a pressure point for providers and continue to impact margins. We expect demand for temporary staffing will remain elevated in the longer term because of longstanding supply and demand issues, keeping bill rates for temporary nurses at least 30% higher than pre-pandemic levels. In our view, the use of travel nurses will remain an important source of labor for providers that will continue to utilize the agencies to source temporary staffing solutions, permanently elevating the price providers pay for labor.

Providers have also invested heavily in recruitment and retention, capacity management, and workforce diversification (hiring case managers, licensed practice nurses [LPN] etc.) to reduce the elevated levels of contract labor. In its first and second quarter earnings calls, HCA Healthcare Inc., the nation's largest publicly traded hospital, cited hiring of registered nurses increased almost 19% in the second quarter of 2023 compared to the previous four-quarter average, allowing the hospital to reduce contract labor more than 20% compared to last year while maintaining a pre-COVID level of turnover, though the company noted some continued capacity constraints. Indeed, health care workforce solutions provider AMN Healthcare Services Inc. cited its Nurse and Allied revenue was down 37% from the record high of the prior year period in its second quarter earnings call, with average bill rate down about 20% year-over-year. The company's Travel Nurse revenue during the first and second quarters decreased nearly 40% from the prior year periods.

While nurse staffing has improved since the beginning of 2023, the physician staff shortages persist largely due to demographics with people living longer and thus needing more medical care, combined with the aging health care workforce. The gap between supply and demand is furthered by clinician burnout, early retirements and lesser number of physicians graduating. As per 2022 data by U.S. Bureau of Labor Statistics (BLS), about 30% of physicians are aged 55 or older and thus will reach retirement age in near term. The American Hospital Association estimates that the health care industry will face a shortage of up to 124,000 physicians by 2033.

Physician shortage also vary by specialty--primary care doctors and pediatrician specialties are seeing the largest gap due to lower compensation and high demand; specialties like cardiologists, orthopedics, neurologists, rheumatologists, and pulmonologists are in high demand due to the aging population. We believe that growing physician shortages, increasing physician compensation costs, with the backdrop of increasing demand for health care, will pose challenges for the health care providers and pressure their margins in the near term.

Demand for allied health professionals including therapists, radiologists, and behavioral care providers is on the rise as well. Shortages of behavioral health providers is a significant concern; the shortage of skilled therapists will continue to limit capacity, constraining growth over the next several years, and thus will remain a cost headwind in the near term for the providers.

Chart 3


The impact from Medicaid redeterminations remains uncertain

The COVID-19 public health emergency (PHE) began in March 2020 and was extended on Jan. 11, 2023, until mid-May. Congress initiated several provisions tied to the PHE as part of the 2020 Family First Act (FFA), including a provision that Medicaid programs keep people continuously enrolled through the end of the PHE, with no redetermination of eligibility. In December 2022, as part of the Consolidated Appropriation Act, Congress delinked the continuous enrollment provision from the PHE, ending continuous enrollment on March 31, 2023. States could thus resume disenrollment as of April 1, 2023.

According to an April 2023 letter from the Department of Health and Human Services (HHS) to the states, about 15 million Medicaid enrollees could leave Medicaid due to loss of eligibility and will need to transition to another source of coverage. We expect a relatively high percentage of those individuals qualify for employer-sponsored coverage or coverage within the health insurance marketplace. Nevertheless, HHS estimated nearly 7 million people will lose Medicaid coverage despite still being eligible (known as administrative churning). In mid-July, CMS required certain states to pause terminations to correct errors causing a high level of procedural terminations. As of Sept. 20, 2023, more than 7 million Medicaid enrollees have been disenrolled, with more than 70% of all people disenrolled having their coverage terminated for procedural reasons.

The impact of Medicaid redeterminations will depend on the magnitude and the risk profile of disenrolled people, many of whom will likely purchase individual plans. Some companies, like Elevate PFS Parent Holdings Inc. (CCC+/Negative) and ModivCare Inc. (B-/Negative), have experienced, or are expected to experience, a direct impact from the continuous enrollment process or disenrollment process.


Appendix Table 1

Upcoming debt maturities
North American speculative-grade health care
Issuer Rating Liquidity Score Upcoming Maturity
Debt Type Date
Companies with weighted average maturity of less than two years

Air Methods Corp.

CCC/Negative Weak RCF Apr 2024
First-Lien Term Loan Apr 2024
Senior Notes May 2025

Carestream Dental Technology Parent Ltd.

CCC/Negative Weak RCF Jun 2024
First-Lien Term Loan Sep 2024
Second Lien Term Loan Sep 2025

Exactech Inc.

CCC/Negative Less than adequate RCF Nov 2024
First lien term loan Feb 2025

Greenway Health LLC

CCC/Negative Weak RCF Nov 2023
First-Lien Term Loan Feb 2024

HealthChannels Intermediate HoldCo LLC

CCC/Negative Less than adequate First-Lien Term Loan Apr 2025

Quincy Health LLC

CCC/Negative Weak Asset Based Loan (ABL) Jul 2024
First-Lien Term Loan Apr 2025

Sound Inpatient Physicians Inc.

CCC/Negative Less than adequate RCF Sep 2023
First-Lien Term Loan Jun 2025
First-Lien Term Loan Jun 2023

Vyaire Medical Inc.

CCC/Negative Less than adequate RCF Apr 2024
First-Lien Term Loan Apr 2025

Zotec Partners LLC

CCC/Negative Weak RCF Sep 2023
First-Lien Term Loan Feb 2024

Medical Depot Holdings Inc.

CCC+/Negative Less than adequate First-Lien Term Loan Jun 2025

Team Health Holdings Inc.

CCC+/Negative Adequate RCF Nov 2023
First-Lien Term Loan Feb 2024
Senior Unsecured Notes Feb 2025

WellPath Holdings Inc.

CCC+/Negative Less than adequate RCF Oct 2024
First-Lien Term Loan Oct 2025

Alvogen Pharma US Inc.

B-/Negative Less than adequate Asset Based Loan (ABL) Jan 2025
Senior secured term Loan (Non extended portion) Dec 2023
Senior Secured term Loan Jun 2025

Mercury Parent LLC

B-/Negative Adequate First-Lien Term Loan Feb 2025

Premise Health Holding Corp.

B-/Stable Adequate RCF Apr 2025
First-Lien Term Loan Jul 2025

YI Group Holdings LLC

B-/Stable Adequate RCF Aug 2024
First-Lien Term Loan Nov 2024

Aegis Sciences Corp.

B/Stable Adequate First-Lien Term Loan May 2025

Amneal Pharmaceuticals LLC

B/Stable Adequate First-Lien Term Loan May 2025
First-Lien Term Loan Jan 2025
Companies with weighted average maturity of more than two years

U.S. Renal Care Inc.

D/-- Adequate RCF Jun 2024

BVI Holdings Mayfair Ltd.

CCC+/Negative Less than adequate RCF Aug 2025

Femur Buyer Inc.

CCC+/Negative Less than adequate RCF Aug 2025
RCF Mar 2024

LifeScan Global Corp.

CCC+/Negative Adequate RCF Jul 2024
RCF Jul 2025
First-Lien Term Loan Oct 2024

Radiology Partners Holdings LLC

CCC+/Negative Less than adequate RCF Nov 2024
First-Lien Term Loan Jul 2025

Viant Medical Holdings Inc.

CCC+/Positive Adequate RCF Apr 2025
First-Lien Term Loan Jul 2025

ADMI Corp.

B-/Negative Adequate RCF Apr 2025
First-Lien Term Loan Apr 2025

Emergent BioSolutions Inc.

B-/Negative Adequate RCF May 2025
First-Lien Term Loan May 2025

EyeCare Partners LLC

B-/Negative Adequate RCF Feb 2025

Pathway Vet Alliance LLC

B-/Negative Adequate RCF Mar 2025

Artivion Inc.

B-/Stable Adequate RCF Jun 2025

Covenant Surgical Partners Inc.

B-/Stable Adequate RCF Jul 2024

ASP Navigate Acquisition Corp.

B-/Stable Adequate RCF Oct 2025

NMN Holdings III Corp.

B-/Stable Adequate RCF Nov 2025

Goldcup Holdings Inc.

B-/Stable Adequate RCF Feb 2025

Golden State Buyer Inc.

B-/Stable Adequate RCF Jun 2024

Netsmart LLC

B-/Stable Adequate RCF Oct 2025

NSM Top Holdings Corp.

B-/Stable Adequate RCF Nov 2024

Waystar Technologies Inc.

B-/Stable Adequate RCF Oct 2024

AG Parent Holdings LLC

B-/Positive Adequate RCF Jul 2024

Surgery Partners Inc.

B-/Positive Adequate Unsecured Notes Jul 2025

FC Compassus LLC

B/Negative Adequate RCF Oct 2024

Carriage Services Inc.

B/Stable Adequate RCF May 2025

Upstream Newco Inc.

B/Stable Adequate RCF Nov 2024

Verscend Holding II Corp.

B/Stable Adequate RCF May 2025
First-Lien Term Loan Aug 2025

Certara Holdco Inc.

B+/Positive Adequate RCF Aug 2025

Elanco Animal Health Inc.

BB-/Stable Adequate First-Lien Term Loan Jun 2025

Encompass Health Corp.

BB-/Stable Adequate Senior Unsecured Notes Sep 2025

Owens & Minor Inc.

BB-/Stable Adequate Senior Secured Notes Dec 2024

Varex Imaging Corp.

BB-/Stable Adequate Asset Based Loan (ABL) Sep 2025
Convertible Notes Jun 2025

Jazz Pharmaceuticals PLC

BB-/Positive Adequate Convertible Notes Aug 2024

Teva Pharmaceutical Industries Ltd.

BB-/Stable Adequate Senior Unsecured Notes Dec 2024
Senior Unsecured Notes Dec 2023

Matthews International Corp.

BB/Stable Adequate RCF Mar 2025

IQVIA Holdings Inc.

BB+/Stable Strong First-Lien Term Loan Mar 2024
First-Lien Term Loan Jun 2025
Note: As of Sept. 20, 2023. RCF--Revolving credit facility. Source: S&P Global Ratings.

This report does not constitute a rating action.

Primary Credit Analysts:Sarah Kahn, Washington D.C. + 1 (212) 438 5448;
Richa Deval, Toronto + 1 (416) 507 2585;
Secondary Contact:Arthur C Wong, Toronto + 1 (416) 507 2561;
Research Assistant:Ameel A Musani, Pune

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back