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Fitch: High Event Risk, Fundamentals Solid for U.S. Healthcare
June 6, 2017 / 4:13 PM / 5 months ago

Fitch: High Event Risk, Fundamentals Solid for U.S. Healthcare

(The following statement was released by the rating agency) NEW YORK, June 06 (Fitch) The U.S. healthcare sector has solid fundamentals relative to other corporate sectors, but faces high levels of event risk from political and regulatory uncertainty, according to Fitch Ratings' fifth annual U.S. High-Yield Healthcare Checkup handbook. "Most speculative-grade rated healthcare companies in the U.S. will see earnings growth this year given the strong demand for healthcare services and innovation in available treatments," says Megan Neuburger, Managing Director, U.S. Corporates. "However, headline risk will be a persistent backdrop." Of the group of companies profiled in this year's edition of the Checkup, 22% currently have a Negative Rating Outlook--more than in past years. Most of these companies are healthcare providers, which face some of the greatest challenges adapting to a value-based care system. A number of financial metrics for the Checkup group of companies reflect the current challenges: Median leverage increased to 5.7x from 4.9x in 2016 as companies took on debt to complete acquisitions. Fitch expects these levels to normalize by year-end, as several companies are in the midst of balance sheet repair. The median free cash flow margin (FCF) fell versus the year-ago period, with healthcare providers generally tallying at or below the median, and pharmaceutical and medical device manufacturers generally tallying above it. Although most companies have addressed near-term maturities (Community Health Systems, Valeant, Tenet Healthcare and Select Medical Holdings have all addressed large maturities scheduled for next year), acute care hospitals represent 71% of all bonds and loans maturing for the Checkup group through 2019. Of the hospital companies profiled in the report, only two companies, Quorum Healthcare and LifePoint Health, have very light near-term maturity schedules. Fitch identified six companies that have either a Negative Outlook or a deteriorating trajectory. They include Community Health Systems, DJO Finance, Endo Pharmaceuticals, Valeant Pharmaceuticals, Quorum Healthcare, and Kindred Healthcare. Two companies have a Positive Outlook or have an improving trajectory: Quintiles IMS Holdings and Hologic. Fitch's High-Yield Healthcare Checkup Handbook, published annually, analyzes the business profiles and capital structures of the 18 largest high-yield debt issuers in the U.S. healthcare industry. The companies profiled have a cumulative $155 billion of debt outstanding, including high-yield bonds and bank loans, up from $148 billion since last year's report. The full report, "The Checkup: High-Yield Healthcare Handbook - Comprehensive Analysis of High-Yield U.S. Healthcare Companies," is available at Contact: Megan Neuburger, CFA Managing Director +1-212-908-0501 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on Related Research The Checkup: High-Yield Healthcare Handbook (Comprehensive Analysis of High-Yield U.S. Healthcare Companies) here The Checkup: High-Yield Healthcare Handbook (Comprehensive Analysis of High-Yield U.S. Healthcare Companies) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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