Moody’s analyzed 47 healthcare companies that were rated “B2” or less with at least $1 billion of outstanding debt. It includes companies that were rated by Moody’s corporate finance group, which excludes nonprofit hospitals and other healthcare issuers rated by other areas of Moody’s.
Three things to know:
1. Aggregate interest expense for the 47 healthcare companies will jump 21 percent — to 7.7 percent of total debt — by the end of 2023, according to the report. The projection reflects incremental increases. Median free cash flow to debt and interest coverage for these 47 companies is projected to fall to -2.4 percent (48 percent decline) and 1.1x (8 percent decline) by the end of 2023.
2. If interest rates continue to rise, these metrics would drop even further, according to Moody’s, which expects rate hikes over the last year to have a larger effect on the 47 companies than those throughout the rest of 2023. For the 47 issuers, Moody’s projects aggregate interest expense to increase 35 percent — while median interest coverage would fall to 0.9x — by year-end 2023 if rates were to increase another 200 basis points versus February 2. Free cash flow to debt would fall to -3.5 percent.
3. Rate hikes taken over the last 12 months will decrease the 47 issuer’s median free cash flow to debt by 55 percent by the end of 2023, while interest coverage will decline by 15 percent, according to Moody’s. About 90 percent of the “B3”-rated companies in the sample group are owned by private equity, compared to 69 percent of “B2”-rated issuers.
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