Despite M&A activity hurting healthcare credit ratings, new report has positive outlook

A new report by Fitch Ratings sustained a positive outlook for the healthcare industry despite a dip in healthcare credit ratings due to merger and acquisition (M&A) activity in the sector. The report indicated healthcare is one of the top contributors to the surge in high-grade bond issuance throughout the past ten years.

Among the report’s many findings are the following:

  • While healthcare systems take on more debt to execute acquisitions and achieve greater scale and cost efficiencies, the projections are not fully offsetting their growing amounts of debt
  • M&A activity won’t slow, however, as health systems face pressure to lower prices, changes in regulations and historically low interest rates
  • Downgrades in credit can limit providers’ access to capital and negatively impact their reputation
  • 10 companies, including CVS Health and Cigna, account for 51 percent of the outstanding investment-grade healthcare bonds

More than 250 industry deals are underway for the fifth consecutive quarter, an increase of 0.4 percent from last year’s third quarter. Although the number of hospital transactions decreased by 11.8 percent, for the first time since 2016, the sector represented the largest by deal value, primarily due to RCCH HealthCare Partners' $5.6 billion acquisition of LifePoint Health. The largest sub-sector by deal volume was long-term care, a continuation of a multi-year trend. In addition, behavioral care saw a 66.7 percent increase in deal volume.


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