Universal Health Downgraded by Moody’s

Moody's Investors Service on Wednesday downgraded hospital operator Universal Health Services Inc. rating to negative from stable over concerns about UHS’s debt ratio and operations environment. But the ratings company affirmed the Baa3 senior unsecured rating affecting $450 million.

Moody's said it’s negative outlook reflects expectation that the company may continue to increase financial leverage to fund a combination of share repurchases, capital investment, and potential acquisition activity.

“In recent periods, the growth in the company's funded debt has outpaced the level of improvement in other operating indicators,” Moody’s said in a note to investors. “This has resulted in weakening credit metrics, especially in terms of cash flow coverage of debt, interest coverage and overall financial leverage.

Moody's said it expects UHS will continue to be challenged by weak volume and rising bad debt trends plaguing the industry as well as company specific challenges, including competitive pressures in the markets it serves and an ongoing investigation into kickbacks and physician self referral for treatment of student athletics by the Office of Inspector General at one of its operating subsidiaries.

“Given the weak position within the Baa3 rating category, Moody's believes there is a risk that unfavorable developments in any combination of these challenges could prevent the company from maintaining credit metrics at levels considered appropriate for the rating category.”

UHS, based in King of Prussia, Pa., is one of the nation’s largest hospital companies, operating acute care and behavioral health hospitals and ambulatory centers nationwide and in Puerto Rico.