Earlier this month, Dallas-based Baylor Health Care System and Temple, Texas-based Scott & White Healthcare said they intended to merge into one system. However, their agreement of intent will not have any immediate impact on the systems' credit ratings, according to a report from Standard & Poor's Ratings Services.
The next step for Baylor and Scott & White is to go through due diligence, and a definitive agreement is expected by April 30, 2013. After the merger is complete, the resulting system would be the largest in Texas and one of the 20 largest nationwide.
Currently, S&P rates Baylor's credit as "AA-" with a stable outlook, while Scott & White has an "A" credit rating with a stable outlook. Initially, large mergers like this slightly drag down the stronger credit, which may happen to Baylor.
"Although we believe that the consolidated organization's market position will be enhanced and that overall operational metrics will improve after the merger, an analysis of our generated set of consolidated financials shows that a combined organization would be initially dilutive to Baylor Health Care System's key credit rating metrics," S&P analysts wrote. "This same analysis shows that a combined organization would be initially beneficial to Scott & White Healthcare, improving key balance sheet and operational metrics."
S&P plans to meet with both Baylor and Scott & White in the first quarter of 2013 to determine if there should be any change in their ratings or financial outlook, according to the report.
The next step for Baylor and Scott & White is to go through due diligence, and a definitive agreement is expected by April 30, 2013. After the merger is complete, the resulting system would be the largest in Texas and one of the 20 largest nationwide.
Currently, S&P rates Baylor's credit as "AA-" with a stable outlook, while Scott & White has an "A" credit rating with a stable outlook. Initially, large mergers like this slightly drag down the stronger credit, which may happen to Baylor.
"Although we believe that the consolidated organization's market position will be enhanced and that overall operational metrics will improve after the merger, an analysis of our generated set of consolidated financials shows that a combined organization would be initially dilutive to Baylor Health Care System's key credit rating metrics," S&P analysts wrote. "This same analysis shows that a combined organization would be initially beneficial to Scott & White Healthcare, improving key balance sheet and operational metrics."
S&P plans to meet with both Baylor and Scott & White in the first quarter of 2013 to determine if there should be any change in their ratings or financial outlook, according to the report.
More Articles on Hospital Finance and Mergers:
4 Drivers of Healthcare Capital Financing — And How They Affect CFOs
Finding Value in Your Organization: Q&A With Baylor Health CFO Fred Savelsbergh
Merger Forecast: Financial Clout Ahead for Henry Ford, Beaumont