S&P Global downgraded Franklin, Tenn.-based Community Health Systems’ issuer credit rating from “CCC+” to “SD” (selective default) following a discounted repurchase of $625 million in outstanding debt — a move that reflects the health system’s high leverage and recurring reliance on below-par debt exchanges.
Six things to know:
1. The downgrade follows CHS’ recent offer to repurchase 6.875% senior unsecured notes due 2028 at $750 per $1,000.
2. This is the fourth time in three years CHS has been downgraded to “SD”, reflecting ongoing capital structure concerns.
3. The downgrade follows CHS’ proposed deal to sell its 80% stake in Cedar Park (Texas) Regional Medical Center to St. Louis-based Ascension for $460 million.
4. S&P expects to raise CHS’ rating back to “CCC+” in the coming days, with a negative outlook, as the transaction modestly reduces debt.
5. Despite the downgrade, S&P noted some credit-positive elements, including CHS’ plan to use divestiture proceeds for deleveraging and signs of operational improvement. Recent gains in patient volumes, reduced use of expensive contract labor and easing inflationary pressures have supported EBITDA margins. However, specialist fees and acuity mix continue to pressure earnings, and delays in state supplemental payments are limiting free cash flow gains.
6. The ratings agency warned that CHS’ capital structure remains fragile, and future distressed exchanges are a continuing risk. S&P said it will monitor the impact of any further divestitures expected later this year.