Community Health Systems is refinancing up to $2.8 billion in debt, the investor-owned hospital chain announced Friday.
Franklin, Tenn.-based CHS is selling about $1.9 billion in senior secured notes due in 2027 plus $900 million in senior secured notes due in 2029, with the proceeds going toward redeeming bonds due in 2023. The company is also issuing a cash tender offer for up to $1 billion of its almost $2.7 billion in outstanding bonds due in 2023.
CHS' 2023 debt consists of senior secured notes with a 6.25% interest rate. The tender offer on that debt expires Jan. 11, 2021, unless the company terminates it early.
Moody's Investors Service on Friday rated CHS' new senior secured notes at Caa2 with a stable outlook. Moody's said the rating reflects its expectation that CHS will continue to operate with very high leverage, in debt in the mid-to-high seven times earnings. CHS' outstanding debt currently stands at at $12.1 billion, according to a spokeswoman.
In a separate analysis, Fitch Ratings calculated CHS' debt ratio at 8.4 times earnings as of Sept. 30, when it was $12.8 billion, including federal stimulus grants from the CARES Act, and 12 times excluding the grant money.
Moody's said its rating is also constrained by its projection that CHS will see negative free cash flow over the next 12 to 18 months because of its high interest costs, significant capital requirements and the requirement to repay its accelerated Medicare payments beginning in April 2021. The ratings agency noted CHS faces the same industry-wide headwinds as its peers with the ongoing COVID-19 pandemic, which will continue to dampen volumes next year.
Earlier this week, CHS announced it had reached an agreement with an investment manager to exchange $700 million worth of debt for $400 million in cash and 10 million newly issued shares of the company's stock.
CHS reported net income attributable to shareholders of $112 million in the third quarter, which ended Sept. 30, compared with a net loss of $17 million in the prior-year period. The company's longtime CEO, Wayne Smith, will step down at the end of 2020.
This article has been updated to reflect a subsequent transaction announcement from CHS.