Fitch Ratings finalized rating criteria changes for U.S. nonprofit hospital and health system revenue debt in January, with the rollout completed in mid-July. Now, nearly 30 hospitals are no longer on rating watch, according to an update released Aug. 7.
Fitch placed 16 hospitals on rating watch negative and 14 on rating watch positive as part of its rating review associated with the new criteria. The agency affirmed six and downgraded 10 of the16 hospitals placed on rating watch negative. Of the hospitals placed on rating watch positive, the agency affirmed five and upgraded nine. But the agency said its rating watch is over, as most hospitals are performing as initially anticipated, with 52 percent ratings affirmed and another 28 percent upgraded.
Fitch Senior Director Kevin Holloran said he was s surprised upgrades occurred more often than downgrades.
"Upgrades generally came from longtime consistent performers that benefited from a 'new look' through the lens of our updated criteria," Mr. Holloran said in the Fitch update. "Conversely, downgrades were more varied with balance sheet strength an overarching need over size or market share, asserting our view that balance sheet strength translates into more predictable credit stability."
Fitch initially projected about 15 percent of its roughly 300 ratings would be moved up or down over time by the new criteria. So far, the agency said most of its rating changes (93 percent) were no more than two notches, with the exceptions of West Columbia, S.C.-based Lexington Medical Center, which Fitch downgraded six notches due to a pension liability factored into its analysis.
Fitch also upgraded Chicago-based Presence Health Network seven notches due to a master trust indenture substitution.
Moving forward, the agency expects "normalcy" for nonprofit hospitals after the criteria implementation
"The short-term volatility that criteria change often brings will result in longer term rating stability," said Mr. Holloran, adding that "numerous external factors could dictate how frequently Fitch takes future rating actions on select hospitals and health systems."
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