1、March 2023PFG WebinarUS Not-for-profit Healthcare:Developments to Watch in 2023Developments to Watch in 2023,March 20232|Webinar Series Sign-up Once Live Q&Ahttps:/live.moodys.io/us-public-finance-in-focus-channelGet regular updates on the US Public Finance in Focus programEngage with the analysts a

2、nd get your questions answered Schedule&Materials Developments to Watch in 2023,March 20233Please complete our surveyWe Want to Hear From You!A survey will appear on your screen at the end of our presentation.Please take a few moments to complete it and let us know how we can continue to improve.Dev

3、elopments to Watch in 2023,March 20234 Median rating remains A2 Longer tail is result of rapid cash deterioration through end of 2022Overall,healthcare ratings remain very strongWide distribution reflects vast difference in operating scope and balance sheet strengthDevelopments to Watch in 2023,Marc

4、h 20235Healthcare financial health through the pandemic2022March 2022Q1 financials among the worst in the last 20+years,but balance sheets also at all-time highsExpectations were for labor to return to normal after a quarter or twoJune 2022Average length of stay rises b/c of staffing issues at post-

5、acute settingsNursing labor shortages ease relative to Q1 and temp staffing costs fall,but remain above pre-Omicron levelsNursing salaries rise faster in response to supply/demand imbalanceFEMA announces aid for labor issuesQ2 financials are mixed,Moodys begins asking about potential covenant breach

6、es2023December 2022Q4 financials show modest improvementHospitals with breached covenants begin discussions with lenders 2024&beyondYTD 2023Labor expense continues to stabilizeVolume recovery remains mixedCovenant breaches still a risk for someSeptember 2022Q3 financials broadly weaken;Medicare adva

7、nces fully repaidFEMA repayments are below expectations and timing is not reliableExpectations regarding labor market weaken compared to Q12024 ExpectationsReturn to pre-covid margins for someStabilization of expense growthContinued volume recoverySlow balance sheet rebuildIncreased capital spending

8、Remainder of 2023Continued unevenness in volume recovery Labor expense will remain elevated Improved margins over 2022 but below pre-pandemicLimited balance sheet growthDevelopments to Watch in 2023,March 20236Operations to remain below pre-pandemic levels for the near-term2023 is the beginning of a

9、 prolonged recovery phaseData in this chart is derived from the performance of 264 health systems for fiscal 2017-2021 and 126 health systems for fiscal 20220%1%2%3%4%5%6%7%8%9%10%20020202120222023 ProjectedMedian operating cash flow margin(%)Developments to Watch in 2023,March 20237Rebui

10、lding cash will be a challenge for those with muted operationsAlthough cash is down,it continues to be a stabilizer for most0%50%100%150%200%250%050030020020202120222023 projMedian Days Cash on Hand(left axis)Median Unrestricted Cash and Investments to Total Debt(right axis)Dat

11、a in this chart is derived from the performance of 264 health systems for fiscal 2017-2021 and 126 health systems for fiscal 2022Developments to Watch in 2023,March 20238Where 2022s credit events continue to impact ratingsWeak financial performanceOngoing labor issuesProtracted volume challengesRisi

12、ng in average length of stayOutsized operating declinesDeclining cash positionWeak cash flow from operationsInvestment lossesFaster growing expense basesRepayment of Medicare AdvancesRisk of downward rating actionDevelopments to Watch in 2023,March 20239Downgrades outpace upgrades,but affirmations d

13、ominateWeakest 20%will continue to face pressureLooking ForwardOperating&balance sheet metrics began to stabilize and modestly improve through 12/22Expectations for prolonged rebound,with full recovery in 2024 or 2025What were watching:FYE 2023 covenant breachesStressing quarterly data to identify c

14、redits most at risk(weak operating cash flow+cash burn)Developments to Watch in 2023,March 20230BelowBaaBaaAAaOutlook by Rating CategoryPositiveStableNegativeAcute stress more prominent in lower-rated systems7.3%9.6%6.2%5.9%5.3%3.3%3.3%4.1%3.6%-3.8%-0.5%-2.9%-10.1%-4.8%-9.6%-15

15、%-10%-5%0%5%10%15%Aa1Aa2Aa3A1A2A3Baa1 Baa2 Baa3Ba1Ba2Ba3B1B3Caa2Average YTD OCF Margin by Rating CategoryData through September 30,2022Developments to Watch in 2023,March 202311But not all breaches result in rating actionCovenant breaches likely through 2023 EOD due to financial covenant breach Quar

16、terly or semi-annual measurement dates Rating triggers in bank or swap agreements Cross-default provisions What are we most concerned about in 2023?Proactive management including discussions with banks,bondholders Waivers or amendments Multiple levers to avoid breaches Ample cash to cover debt oblig

17、ations Strong fundamental strengthsWhat are mitigants to covenant issues?Affirmation/stable outlook:high likelihood of no EOD even if breach Downgrade and/or negative outlook:moderate likelihood of covenant breach due to poor operating performance/low cash Downgrade and/or RUR:high likelihood of EOD

18、,acceleration of debt and insufficient cash to cover debtWhat are potential rating outcomes?Developments to Watch in 2023,March 202312Characteristics of systems that continued to thrive in 2022Growth market boosts demandRobust cash pre-2022Strong,centralized management/demonstrated ability to cut co

19、sts quicklyNew supplemental paymentsAbsence of or well-managed covenant issuesAble to contain labor costs more easily due to focus on specialty services or outpatient careAbility to sell non-core or underperforming assetsThrough 12/22:50%of issuers had solid 6%OCF and 70%of portfolio is stable.Heres

20、 why:Developments to Watch in 2023,March 202313LaborCompounding effect of high wages Ability to balance contract labor&overall costsEfficiency measures Union activityTrends to watch in 2023Volume trendsRecovery vs pre-COVIDImprovement in meeting demandEffective measures to reduce LOS ReimbursementEn

21、d of continuous enrollment 340B/drug pricingFull year of sequestrationSite-neutral paymentsCyberOngoing cybersecurity investment will further raise costsPotential operating disruption Diversification strategiesM&APartnershipsJVs Eva BogatyAssociate Managing DirectorEva.BogatyM(415)274-1765Rita Strau

22、ssAVP-AnalystRita.StraussM(212)553-3908Diana LeeVP-Sr Credit OfficerDiana.LeeM(212)553-4747Nansis HayekAnalystNansis.HayekM(212)553-6875Developments to Watch in 2023,March 202315 2022 Moodys Corporation,Moodys Investors Service,Inc.,Moodys Analytics,Inc.and/or their licensors and affiliates(collecti

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