H2C INDUSTRY INSIGHTS: CAPITAL MARKETS
Credit Ratings and Actions
Week of November 13, 2023
Credit Ratings & Actions: Healthcare
October NFP Healthcare Rating Actions (1)
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Centra Health (VA) was upgraded by Moody’s to A3 from Baa1 as a result of strong financial results and successful implementation of productivity, financial, and capital improvement plans. Centra Health also received an upgrade from Fitch from A- to A.
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Standard & Poor’s downgraded ten credits in the month of October compared to zero upgrades and nine affirmations, a further example of its current Negative Outlook on the healthcare sector.
October NFP Healthcare Upgrades/Downgrades (1)
Rating Agency Commentary on NFP Healthcare Sector
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Moody’s published its 2024 outlook on the Not-for-Profit and Public Healthcare sector which upgraded its outlook to stable from negative.
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Moody’s expects revenue to slightly outgrow expenses in 2024 and subsequently expects operating cash flows and margins to improve. Driving the growth will be increases to patient volume growth, reimbursement rate increases, and improved revenue cycle management.
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Moody’s believes liquidity will remain strong, although it notes that hospitals and health systems will need to increase capital investments following deferrals over the past few years.
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Government policies and regulations will be a focus in 2024. Moody’s notes that despite some states’ expansions of Medicaid and FEMA grants, there is increased regulatory risk as states and federal governments block M&A transactions and Medicare reimbursement fails to match inflation.
Credit Spreads – 30Y Hospital Indices (3) • (bps)
Source: Moody’s Investor Service, S&P Global Ratings, and Fitch Ratings.
(1) Current Moody’s/S&P/Fitch ratings, reflecting indicated August rating actions.
(2) Moody’s report “2024 Outlook – Revised to stable as financial recovery gains momentum” (November 7, 2023)
(3) US NFP Hospital indices spread to AAA GO benchmark. Bloomberg BVAL indices. BVAL indices based on recent primary and secondary market trades and reflect impact of periods of market volatility and limited trading activity. Data as of November 10, 2023.
Credit Ratings & Actions: Higher Education
October Higher Education Rating Actions (1)
October Higher Education Upgrades/Downgrades (1)
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Winston-Salem State University (“WSSU”) in North Carolina was upgraded by Moody’s to A2 from A3. The upgrade comes as a results of WSSU increasing its total wealth by 200% over the past five years in addition to strong debt service coverage, healthy margins, and significant support from the State of North Carolina.
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Moody’s downgraded Susquehanna University (PA) as a result of compressed margins and debt service coverage in addition to stiff competition and relatively weak demographics, which Moody’s implements into its ESG scoring.
Rating Agency Commentary on Higher Education Sector (2)
Credit Spreads – 30Y Higher Education Indices (3) • (bps)
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Moody’s released a report stating that private equity investment allocations among higher education institutions has increased over the past several years, and that this will present a credit risk for weaker universities “with limited wealth”.
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Moody’s says that total higher education exposure to private equity has increased from approximately 10% in 2018 to nearly 18% in 2022 (weighted by dollars).
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The rating agency states that private equity presents additional risks that are less present in public investments including illiquid holdings, capital commitments, valuation timing, market and strategy risks, and higher fees.
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Moody’s believes that institutions with smaller cash balances are more susceptible to these risks as they may not have the balance sheet to fund operating losses and will not be able to liquidate their private equity holdings.
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Institutions can reduce their risk via credit facilities, strengthening risk management, improving operating performance, and increasing donor support.
(1) Source: Moody’s, S&P and Fitch
(2) Moody’s report “Private equity exposure increases credit risk for universities with limited wealth” October 30, 2023.
(3) US Higher Education indices spread to AAA GO benchmark. BVAL indices based on recent primary and secondary market trades and reflect impact of periods of market volatility and limited trading activity. Data as of November 10, 2023.
Key Rates
Source: U.S. Department of the Treasury, Bond Buyer, Investment Company Institute, Bloomberg and Refinitiv/TM3. Data as of November 10, 2023.
The information presented herein was obtained from resources believed to be reliable and accurate, but H2C Securities Inc. does not guarantee the accuracy or completeness or assume a responsibility for any loss which may result from the action by any person upon such information. Such information is subject to change without notice and is not intended as a recommendation, offer, or solicitation with the respect to the purchase or sale of any security.
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H2C Capital Markets Team