A proposed merger between two large nonprofit healthcare systems is a credit positive for the nonprofit healthcare sector, Moody’s Investors Service says.
On Oct. 17 Trinity Health Credit Group and Catholic Health East signed a non-binding letter of intent to merge. Trinity, rated Aa2 with a stable outlook, is the fifth-largest multistate nonprofit health system by operating revenue. Catholic Health East, A2 with a stable outlook, is the eighth-largest nonprofit health system.
The large merger comes as many smaller mergers, acquisitions, joint operating agreements and other types of consolidations in the sector are “happening on a near weekly basis,” Moody’s wrote.
“We view consolidation as a credit positive for the industry overall as merger, acquisitions and various partnership models should create greater efficiencies and lead to reduced hospital operating costs over the long term,” Moody’s associate managing director Lisa Goldstein wrote.
If the merger goes forward, Trinity and Catholic Health would be the first pair of multistate nonprofit health systems to merge since the mid-1990s.
“We expect more system-to-system mergers to be announced given the need to drive up operating efficiencies through scale and leverage,” Goldstein wrote.
Trinity is based in Michigan and operates in the Midwest. Catholic East is based in Pennsylvania and operates along the eastern seaboard. Together they have a total of $4.96 billion in debt.
The structure of the merger has not been determined, Goldstein noted in a phone interview. It is possible that the two firms will be brought together under an umbrella of a new parent company but retain some independence and retain separate debt obligations, she said. In a case like this in the short term the merger would be a credit positive for Catholic Health East but a credit negative for Trinity, Goldstein said.
“Short term” could be up to two years, she said. “Nevertheless, we expect material savings over the longer term as the enterprises leverage their skill and scale,” she wrote.
The merger is expected to close this spring.
