Healthcare now accounts for approximately 16 percent of the companies on Moody’s B3 Negative and Lower List, compared to less than 4 percent at Dec. 31, 2015. That translates to about 80 percent of North American healthcare companies categorized as speculative grade compared to approximately 73 percent in 2015.
More than 80 percent of healthcare companies rated B3 negative or below are owned by private equity groups, Moody’s added.
“Attracted by healthcare’s historical stability and buoyed by accommodative debt markets, financial sponsors have aggressively consolidated fragmented subsectors,” the report said.
But such resulting roll-ups carry high levels of debt, which, together with a challenging macroeconomic environment, will create pressure on cash flows, the report said.
The capital structures of such healthcare groups will likely become unsustainable, as it will become increasingly difficult to find lenders willing to refinance, Moody’s warned.
In total, the 34 healthcare companies on the B3N list total almost $65 billion in debt, an increase of 57 percent compared to March 2020 at the onset of the pandemic and more than double the nearly $33 billion in debt outstanding in January 2019.
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