Every industry has its riskier band of credits-those rated BB+ or lower-but healthcare has the most, says New York-based bond-rating agency Standard & Poor's Corp.
According to an article in the Oct. 28 issue of Standard & Poor's CreditWeek Municipal, the agency maintains "speculative grade" ratings on 38 healthcare credits, or 35% of the agency's total speculative-grade universe of 108 credits. The housing industry had 30 speculative-grade credits and there were 19 tax-backed issues.
The BB category constitutes 52% of Standard & Poor's ratings of BB+ and below. Twenty-three healthcare ratings fall into the BB category, which ranges from BB+ to BB-.
The next largest category, defaults, "reside predominantly within the healthcare and housing sectors," the agency said. Five healthcare credits remain in default, and most of the organizations are no longer in business. They are Hyde Park Hospital, Chicago; Michigan Healthcare Corp., Detroit; James C. Giuffre Medical Center (now part of Philadelphia-based North Philadelphia Health System); Metropolitan Hospital, Philadelphia; and Sacred Heart Medical Center, Chester, Pa.
Managed-care and reimbursement pressures are key factors underlying speculative-grade ratings in healthcare, the article said. "Hospitals with speculative-grade debt often are financially ill-equipped or unprepared to meet the changing conditions," it said.
Many of the hospitals in this riskier group of credits are located in highly competitive markets, such as Chicago, Detroit, Philadelphia and Pittsburgh, or in markets that have a "very small and vulnerable population base," the article said.
So what's the good news? Of Standard & Poor's 13,000 ratings on uninsured debt, less than 1% carry a speculative-grade rating. In healthcare, it's about 4% of 850 ratings.