Sparrow Health rating placed on credit watch amid concerns over merger with U of Michigan

Lansing, Mich.-based Sparrow Health, which is due to be acquired by the Ann Arbor-based University of Michigan Health system, has had a series of bonds it holds placed on credit watch amid concern over the eventual outcome of the planned merger, S&P Global said Feb. 16.

Should the merger close, S&P said, the "A-" rating could be improved, but a downgrade is also possible if the merger fails to take place. In such a situation, the downgrade would be due to expectations of continued operating losses for Sparrow in 2023 as well as a possible default on the existing bonds.

Sparrow management has started a number of initiatives aimed at mitigating expenses in areas such as labor and supply costs as well as reducing the average length of inpatient stay, the rating agency said.

If the acquisition by Michigan Health does occur, it would create a $7 billion health system with more than 200 sites of care.

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