Upgrades of hospital and health system debt outpaced downgrades in the first six months of 1996, but the apparent improvement in debt issuers' overall credit may be nothing more than a momentary blip on the radar screen.
In the six months ended June 30, Moody's Investors Service raised 16 ratings on $803 million of debt and lowered 14 ratings on $746 million of debt. Although upgrades narrowly edged out downgrades, the agency said it's too soon to determine whether the positive upgrades-to-downgrades ratio is "an aberration as it was in 1993." That year, the agency lifted ratings on 17 municipal healthcare credits worth $817 million and reduced ratings on 15 credits, affecting $624 million of debt.
In the preceding and following years, Moody's lowered more ratings than it increased.
Many hospitals Moody's upgraded in the first half are located in less-mature managed-care markets, which have experienced minimal pricing pressure. As a result, hospitals' cost-cutting initiatives have bolstered credit quality, Moody's said. The agency said it expects to see continued competitive and reimbursement pressures.
During the same period, Standard & Poor's Corp. raised 49 ratings worth a total $1.9 billion of debt, but it noted that seven upgrades were for Holy Cross Health System Corp. hospitals and 19 were for Catholic Health Corp. hospitals. When those two corporations are excluded, the number of upgrades falls to 25, compared with 15 downgrades on $350 million of debt. Going forward, the agency expects one upgrade for every downgrade.
Standard & Poor's said the majority of upgraded hospitals and health systems were strong credits to begin with, while the downgraded institutions-rated BBB or below-are "weak and getting weaker."