Despite increasing reimbursement pressures, the number of not-for-profit healthcare institutions rated AA has accelerated over the past decade, Standard & Poor's Corp. reported.
The number of AA-rated borrowers accounted for 8.65% of all ratings in 1993, up from 4.65% in 1984. Standard & Poor's currently rates 67 not-for-profit healthcare providers in the AA category, up from 62 in 1993. A decade ago, it rated just 40 institutions AA.
AA is the top rating that can be achieved without credit enhancements.
All of the AA institutions are renowned for patient care and are providers of choice in their service areas, the New York-based credit-rating agency said. Its analysis of AA credits appears in the Sept. 19 issue of CreditWeek Municipal.
According to the analysis, the median occupancy rate for the AA institutions in 1993, at 71.83%, is higher than the median of 64.86% for all investment-grade institutions, a category that includes ratings of AA, A and BBB.
The AA providers have significantly more cash, lighter leverage and higher margins than lower-rated hospitals, Standard & Poor's said. The median 1993 profit margin of 7.7% for AA providers compares with a 5.3% margin for institutions in the A category.
Over the past three years, debt-to-capitalization levels have dipped 2%, and cash as a percentage of long-term debt has risen 25%.
Because of their financial flexibility, ability to contain costs and pre-eminence in the marketplace, AA-rated institutions "are in the best position to weather the future changes" in the industry, the report said. AA institutions will continue to enjoy easier access to the capital markets and lower cost of capital, and most will remain in the AA category, it said.