For HealthSouth, it looks like a good news/bad news situation in terms of feedback from key financial ratings firm Moody's Investors Service. On one hand, Moody's affirmed the B3 corporate family rating for HealthSouth Corporation, despite some questions about its future. Moody's also upgraded the rating on the company's senior secured credit facility from Ba3 to B2, though it left the rating on the company's senior unsecured notes at Caa1. The upgrade on the senior debt came because Moody's analysts expect that HealthSouth will be able to make more progress on its secured term loan. Moody's also seems to think HealthSouth will have adequate liquidity for the next few quarters, not a bad thing to hear from a ratings agency.
However, this comparatively good news did come with some caveats. For one thing, Moody's notes, "the key financial metrics remain weak for the single B rating category." Among other problems, the company still is highly leveraged, has limited interest coverage and modest cash-flow coverage. Analysts also noted that (like other healthcare providers) HealthSouth faces some meaningful risks because of its reliance on government reimbursement, particularly given its focus on inpatient rehab, which is under scrutiny by federal bean counters.
However, Moody's still believes that HealthSouth can improve its operating and credit numbers over the next few quarters, and if Medicaid, Medicare and SCHIP Extension Act of 2007 passes, inpatient rehab services will be under less pressure to meet regulatory guidelines. Not only that, with the company having put some of the bad ol' Scrushy days behind it by paying settlements out, it can now pay more funds back into the business. Moody's says it could see upgrading its ratings if HealthSouth improves operating performance, credit metrics, expensive savings and debt reduction. (It's worth nothing, though, that HealthSouth was forced to pay out $15 million to settle a kickback case as recently as December of last year, so not everything has changed!)
To learn more about HealthSouth's credit situation:
- read this CNNMoney.com piece
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