CHS releases results of debt exchange, gets downgraded by Moody's

Moody's Investors Service downgraded the ratings of Franklin, Tenn.-based Community Health Systems after the for-profit hospital operator released the final results of its debt exchange June 20.

Under CHS' debt exchange, holders exchanged part of unsecured notes due in 2019, 2020 and 2022 for new junior lien notes due in 2023 and 2024. Moody's said it considered the transaction a distressed exchange, which is a default under the credit rating agency's definition.

Moody's downgraded CHS' corporate family rating to "Caa2" from "Caa1," and downgraded the company's probability of default rating to "Caa2-PD/LD" from "Caa1-PD." The "LD" indicates a limited default, which will be removed after three business days.

"Despite the progress in extending maturities, the downgrade of the CFR and PDR ratings reflects Moody's expectation for weakening interest coverage, cash flow and liquidity," the credit rating agency said. "Further, Community continues to report declining same-facility adjusted admissions, highlighting continued fundamental operating challenges. Absent stabilization in core patient volumes and meaningful improvement in profit margins, Moody's believes there is a material likelihood of another default event over the next 2-3 years."

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