Recession hurting hospital finances
Staff, Moody's Investors Services
April 13, 2009
New York, April 13, 2009 -- While continuing to rely on its core metrics and methodology to evaluate the credit risks being borne by not-for-profit hospitals, Moody's Investors Service has identified four factors that will be critical in determining the 'rating roadmap' for the sector in 2009, says the rating agency in a new report.
"U.S. not-for-profit healthcare was among the first sectors to experience rapid financial weakening due to the deep recession and credit crisis," said Moody's Senior Vice President Lisa Goldstein, author of the report. "Nearly all rated hospitals are expected to report weaker financial performance in 2009 due to the economic problems that accelerated throughout 2008 and prompted our change in outlook to negative from stable in November."
Some of the effects of the recession -- lower patient demand, declining operating performance, loss of balance sheet strength, and weakened liquidity -- have already affected most hospitals and helped prompt an outlook change to negative from stable for the sector in November.
"The unsettled capital markets have limited hospital access to long-term fixed rate debt and nearly closed access for lower-rated hospitals," said Goldstein. "Various counterparties that serve important roles in hospital financings have been downgraded as well, removing a historically abundant vehicle to the bond market."
The Moody's report outlines how its rating analysis will focus on four special risk factors in 2009 to determine when rating action is warranted, including weaker market demand and declining cashflow margins, investment losses and weaker balance sheets. Other items of concern include debt structure, liquidity stress, and market access problems.
Goldstein said not-for-profit hospitals have experienced challenging financial times in the past, most recently in the wake of the 1997 federal Balanced Budget Act (BBA), which cut funding to many hospitals.
"We believe that today's challenges are different and wider in scope -- unemployment has risen more sharply, market access to capital is more restricted, and traditional liquidity and swap counterparties utilized by hospitals have weakened," said Goldstein.
She said the BBA years showed how strong management and governance can stabilize financial performance and preclude rating downgrades in many cases.
"In combination with significant federal government stimulus, strong management and governance will be more important than ever in mitigating the impact of the current economy on hospital bond ratings," said Goldstein.
The Moody's report is the latest in a series of 'roadmap reports' designed to outline the nature of the challenges facing each of the major public finance sectors, provide guidance on how to assess the impact on credit rating in each sector, and examine the factors that may help to offset downward rating pressure.
* * * * *
Link to the story: http://www.moodys.com
Building 2, Suite 100
Lake Oswego, Oregon 97035
503-636-2204 | Fax: 503-636-8310
info@oahhs.org
Copyright © 2009 Oregon Association of Hospitals and Health Systems. All rights reserved.