Could big healthcare bankruptcies be on the way?


By hook or by crook, hospitals and hospital chains have held it together--more or less--during this brutal recession.  Staff and services have been cut, capital projects have slowed or stopped, and bad debt has become a more serious problem than ever, but you haven't seen hospitals closing their doors en-masse.

However, a recent Business Week article shook my confidence that the hospital industry has seen the worst of the recession. Having just written up a short item on HCA's current junk-rated $750 million debt offering, I was shocked to read that Standard & Poor's projecting that the default rate for speculative-grade companies to hit an all-time high of 14.3 percent in the first quarter of 2010. That's up from just less than 1 percent in November 2007.

Actually, that's no surprise to the  professional money watchers, who note that defaults typically peak six to nine months after the economy hits bottom. This time around, with experts predicting a weak recovery, credit problems should linger, according to S&P. In some cases, we'll see some big corporate bankruptcies, analysts warn.

Please note that I'm not picking on HCA in particular: Though it is particularly vulnerable, it's not exactly the only highly leveraged investor-owned healthcare company out there. My point is, if you were hoping companies like HCA were putting the past behind them, you may be getting ahead of yourself. The truth is, a lot of debt will be coming due in 2010, and far too many companies (healthcare and otherwise) just won't be able to pay for it. Just be prepared for more bloodshed. - Anne

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