DALLAS - With a possible sale of the University Medical Center Corp. in the works, Moody's Investors Service has downgraded the Tucson health-care provider's $330 million of debt to Baa2 while retaining a negative outlook.
The downgrade reflects the magnitude of operating losses in fiscal year 2014, Moody's analyst Daniel Steingart wrote in the July 15 report. It comes three weeks after Banner Health announced plans to acquire UMCC. The deal is expected to be completed by the end of the year.
"If a definitive agreement is not reached in a relatively short time period, or if it appears that Banner will allow UMCC's debt to remain outstanding, we may downgrade the rating," Steingart wrote.
The University Medical Center is part of the University of Arizona Health Network, which includes the medical school in Tucson. UMCC is the medical school's teaching hospital.
Phoenix-based Banner Health is one of the largest nonprofit health care systems in the country. The system manages 25 acute-care hospitals, the Banner Health Network and Banner Medical Group.
While the financial terms of the deal have not been disclosed, Banner Health said it planned to invest $1 billion in combining the two health-care networks.
"Ultimately, we're moving from a situation in which we can only maintain status quo, to a situation in which we can create a premier academic medical center." Michael Waldrum, president of the University of Arizona Health Network, said in a prepared statement.
Among the key elements listed in the announcement of the merger was elimination of the University of Arizona Health Network's $146 million of debt. The $330 million of debt in the Moody's report includes that of a physicians' network that operates under UMCC.
"Terms of the deal could change," Steingart wrote. "However, we believe there is a high likelihood the deal will be completed, and this has a stabilizing impact on the rating."
