S&P Raises Outlook on LifePoint Hospitals (LPNT) to Stable; Sees Positive Impact from Obamacare
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Standard & Poor's Ratings Services today revised its outlook on Brentwood, Tenn.-based LifePoint Hospitals Inc. to stable from negative. In addition, we affirmed our 'BB-' corporate credit rating on the company.
At the same time, we affirmed our 'BB-' issue-level ratings on the company's first-lien debt and its unsecured notes. The '4' recovery ratings remain unchanged. The ratings on the first-lien and unsecured notes are the same because we view the credit facility and senior unsecured notes as pari-passu because of the weak security pledge on the first-lien debt.
"The ratings on LifePoint incorporate Standard & Poor's Ratings Services' assessment that the hospital chain operates in rural communities and has to contend with a significant reimbursement risk, competition for its business including outmigration to larger communities, weak patient volume trends, and an extended period of an adverse payor mix shift notwithstanding a favorable shift in the second quarter of 2014," said credit analyst David Peknay.
Our stable rating outlook on LifePoint reflects our view that the positive impact of the Affordable Care Act will enable the company to weather a renewal of weak patient volume trends and ongoing reimbursement pressure. Our outlook is also predicated on our expectation that the company will size its share repurchases to maintain leverage within a range that is consistent with a "significant" financial risk profile (for example, 3x to 4x).
Upside Scenario
An upgrade is unlikely in the foreseeable future. Notwithstanding the positive impact of the Affordable Care Act, considering industry pressures, we would not expect that the company would be able to maintain any meaningful operating improvements suggestive of a better business risk profile. Also, given our view of the company's financial policy which favors share repurchases over debt repayment, we do not expect LifePoint's financial risk profile to deviate from "significant" to "intermediate".
Downside Scenario
A downgrade would be predicated on operating challenges that would prevent LifePoint from maintaining credit metrics consistent with a "significant" financial risk profile. This might include sustained organic revenue declines of even modest size, caused by a chronic reduction in admissions and adverse reimbursement changes that cause margins to contract at least 100 basis points. An increase in debt-financed acquisitions could also contribute to a lower rating.
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