Englewood, Colo.-based Catholic Health Initiatives and San Francisco-based Dignity Health announced a definitive merger agreement Thursday. The combination of the two organizations would likely create a financially stable health system after the initial consolidation period, according to Fitch Ratings.
Fitch said the merger could result in negative rating pressure for Dignity Health, as the system has "minimal capacity at its current rating level for the large strategic initiatives or the initial short-term disruptions" that may occur due to the transaction.
However, CHI stands to benefit from the proposed merger.
"Fitch views the alignment as a credit positive for CHI, as Dignity Health has a more solid financial profile and maintains strong operational oversight of its acute care markets, some of which are in challenging service areas," the debt rating agency stated.
Fitch expects the combined entity's margins and balance sheet to be stretched during the initial consolidation period, but the financial strain will likely only be temporary. Over time, Fitch expects the combined system to generate solid operating results by developing a strong national brand while identifying synergies from the application of best practices across several areas, including revenue cycle, labor management, quality and optimization of information technology.
On Thursday, S&P Global Ratings said although there is no immediate impact on the credit ratings of either health system, it is likely Dignity Health will be downgraded if the deal closes.
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