Moody's: Universal Health Services' Acquisition Strategy May Limit Debt Repayment

Moody's Investors Service has assigned a Ba2 rating to King of Prussia, Pa.-based Universal Health Services and its proposed $500 million incremental term loan.

UHS plans to use the proceeds of the offering to pay off portions of its revolving credit facility and other debt obligations. Moody's analysts said they think UHS will have enough financial leverage to remain comfortably within the Ba rating category, which is considered junk bond status, but the for-profit hospital chain's continued drive toward acquisitions could hinder future debt repayments.

"Moody's expects that the company will continue to be acquisitive and invest in the growth of its behavioral health segment, which will limit debt repayment and near-term credit metric improvement," according to Moody's report. "[However,] if the company can grow EBITDA or repay debt such that leverage is expected to be sustained below 3.0 times and free cash flow to debt is expected to be sustained above 10 percent, Moody's could upgrade the rating."

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