Franklin, Tenn.-based Community Health Systems was downgraded from "B-" to "CCC+," Fitch Ratings said Dec. 8.
Fitch said the downgrade reflects reduced EBITDA and free cash flow estimates for the for-profit system, driving the credit rating agency's near-term expectation of CHS sustaining Fitch-defined EBITDA leverage above the range appropriate for a "B-" long-term issue default rating.
The rating agency said that while improved volumes and normalizing of temporary labor costs helped EBITDA margins rebound from lows experienced during the pandemic, it now expects more limited progress on margins and free cash flow, reducing forecasted debt reduction for 2024-2026.
"Fitch currently expects margins to improve modestly but remain rangebound near term, with pricing outpaced by labor cost inflation and with other operating costs remaining elevated amid adverse trends in medical specialist expense," the rating agency said. "This compares with our previous expectation of further operating improvement driving more rapid deleveraging."
For the nine months ended Sept. 30, CHS had a net loss of $180 million, compared to a net loss of $369 million over the same period last year, according to its third quarter earnings report. Net operating revenues were $9.31 billion for the nine-month period in 2023, compared to $9.07 billion over the same period in 2022.