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Many healthcare companies will have no option but to default in 2024, Moody's says

Heading into 2024, companies face elevated interest rates, weak liquidity and no appetite from lenders for highly-leveraged capital structures.

Susan Morse, Executive Editor

Photo: Kittiphan Teerawattanakul/Eye Em/Getty Images

Moody's Investors Service expects an increase in healthcare borrowing defaults in 2024 versus 2023, as more ratings migrate toward the lower-end of the credit spectrum.

Many healthcare companies will have no other options but to default in 2024, according to the new from Moody's.

Reasons include excessive leverage, elevated interest rates and expiring interest rate hedges, according to the report based on 192 rated North American-based healthcare companies.

Nearly 21% of the 192 rated healthcare companies were on Moody's B3 Negative and Lower List (B3N list) as of November 20, up nearly 18% as of end of year 2022.

Over 60% of the healthcare companies on the B3N List have weak liquidity.

While that is comparable to 2022, refinancing has become more challenging as lenders' appetite for highly-leveraged capital structures has markedly decreased, the report said.

As in 2022, over 90% of companies on the B3N List have excessive leverage, often a result of the aggressive M&A strategies employed by their private equity owners.

No large health systems were on the list, but it included at least one operator and manager of hospitals and outpatient services.

In general, strategies implemented by private equity firms have left some companies – including physician practices, emergency medicine and anesthesiology – with high debt loads, which has limited their ability to adapt to economic and industry changes, the report said.

Moody's called out Envision Healthcare Corp., a provider of emergency services and among the largest rated private equity-owned healthcare companies, as facing multiple challenges. Envision filed for Chapter 11 bankruptcy earlier this year.

The physician staffing company was under pressure due to the passage of the No Surprises Act in 2022, which banned surprise medical bills for out-of-network services and aggressive financial policies reflected in very high debt levels, Moody's said.


Companies will have to restructure debt or default well ahead of maturity walls that remain modest in 2024 but accelerate in 2025, Moody's said.

Ten healthcare companies have defaulted year-to-date, and nine that were already rated B3 negative or lower have been downgraded further, the report said.

In addition to high interest expenses and high leverage, many of the companies on the list are also contending with ongoing industry challenges including continuing pressure by private and public payers to reduce healthcare costs and operating cost inflation.

Healthcare companies' performance has taken a hit from labor cost inflation and adverse changes to industry dynamics.


Improving operating conditions, restructuring measures, amend and extend debt transactions and equity infusions have helped a small number of companies ward off defaults. However, these measures may only provide temporary relief, especially if current macroeconomic headwinds do not subside.

Since March 2022, the Federal Reserve has raised its base rate by 500 basis points to 5.25%, while credit spreads have also widened, further adding to the cost of borrowing.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org